[Asia Economy Reporter Kim Eun-byeol] The profit-sharing system, which is being promoted to overcome polarization caused by the novel coronavirus disease (COVID-19) crisis, is taking shape as a win-win fund created by utilizing voluntary donations and surplus funds from government-operated funds.
According to political circles and the government on the 24th, the Post-COVID-19 Inequality Resolution Task Force (TF) of the Democratic Party of Korea, led by Assemblywoman Yang Kyung-sook, is preparing a bill to establish a win-win cooperation fund or social solidarity fund for disaster recovery. The government has stated that it will first observe the party's discussions. It considers it inappropriate for the government to prematurely present opinions while active discussions are underway in the political sphere.
The Democratic Party TF is shaping the fund's resources so that the government partially contributes while a significant portion is covered by voluntary private donations, and is preparing a fund establishment plan accordingly. Among the government's contributions, the use of accumulated surplus funds or public funds is being considered.
The TF currently estimates that some of the surplus funds from 67 funds managed by central government ministries, totaling approximately KRW 219 trillion (based on 2019 settlement), can be utilized. They are also reviewing the possibility of recovering and using public funds that were used to support companies during the International Monetary Fund (IMF) foreign exchange crisis but have not yet been recovered. During the IMF crisis, KRW 168.7 trillion was provided to the financial industry, of which about KRW 52 trillion remains unrecovered. Additionally, they are considering partially utilizing other resources such as levies or surplus funds held by the Bank of Korea.
Tax incentives are a likely method to encourage voluntary private donations. In the case of the Rural and Fishing Village Win-Win Cooperation Fund, which President Moon Jae-in cited as a precedent, 10% of the contribution is deducted from corporate tax. The TF's bill is expected to set a deduction rate higher than 10% to provide a more 'certain incentive.' In fact, a document shared at the last TF meeting from the Ministry of SMEs and Startups titled 'Concept and Domestic Cases of Cooperation Profit-Sharing System' includes an example of tax benefits that significantly raise the corporate tax deduction rate on contributions to 20%.
The fund thus established will be stipulated to be used for special disaster relief expenses, rent support for small business owners affected by government restrictions, employment support for regions or industries severely damaged by COVID-19, and support for medical personnel. They are also considering creating a separate social cooperation organization involving both public and private sectors to establish and manage the fund.
Besides fund establishment, the party is reportedly preparing other profit-sharing methodologies such as reducing fees charged by platform companies and promoting environmental, social, and governance (ESG) bonds aimed at resolving COVID-19 inequality. Discussions on establishing a dedicated tax for fund creation are currently being deprioritized.
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