[2021 Tax Revision] 5-Year 1.5 Trillion Won Tax Cut Effect... Concentrated on Beneficiary Large Corporations (Comprehensive)

Announcement of 2021 Tax Law Amendment
Support for Research and Investment, Greater Tax Reduction Effects for Large Corporations than for Low-Income, Middle Class, and SMEs
"Excluding National Strategic Technologies, Large Corporations' Tax Burden Increased by 16.1 Billion" Explanation

[Sejong=Asia Economy Reporter Kim Hyunjung] Through this year's tax law revision by the government, tax revenue is expected to decrease by 1.5 trillion KRW over the next five years. Due to the significant proportion of tax support for national strategic technology research and development (R&D) and facility investment, most of the decrease will be attributed to large corporations.

According to the Ministry of Economy and Finance on the 26th, the main factors for the 1.5 trillion KRW decrease in tax revenue are tax support for national strategic technology R&D and facility investment, and the increase in the income limit for the earned income tax credit. The Ministry has not yet disclosed the specific estimated amounts of tax effects by each factor. On the other hand, factors increasing tax revenue include the modernization of criteria for determining specific foreign corporations and the establishment of a tax credit limit for tax payment associations.

The biggest beneficiaries of this tax law revision are large corporations. Looking at the detailed tax burden attribution estimated by the Ministry based on the net method, which calculates the increase or decrease over one year compared to the previous year, large corporations are expected to see a decrease of 866.9 billion KRW over five years, more than twice the 308.6 billion KRW attributed to small and medium enterprises (SMEs). Low- and middle-income earners with income below 150% of the median income (total salary below 72 million KRW) are expected to experience a tax burden reduction effect of 329.5 billion KRW, while high-income earners are expected to face a tax increase effect of 5 billion KRW. Other areas where attribution is difficult, such as foreigners, non-residents, and public interest corporations, are expected to see a tax reduction effect of about 5 billion KRW.

By tax category, income tax is expected to decrease by 331.8 billion KRW over five years, while corporate tax is estimated to decrease by 1.3064 trillion KRW. Value-added tax and other taxes are expected to increase by 7.3 billion KRW and 125.9 billion KRW respectively. Looking at the annual breakdown, the tax reduction effect is concentrated next year (1.2579 trillion KRW), with 190.1 billion KRW in 2023, 20 billion KRW in 2024, and 19.3 billion KRW in 2025, and is expected to be only 17.7 billion KRW after 2026.

Based on the cumulative method, which calculates the increase or decrease compared to this year, tax revenue is estimated to decrease by 7.1662 trillion KRW over five years from 2022 to 2026. By tax category, corporate tax is expected to decrease by 5.8744 trillion KRW, income tax by 1.7933 trillion KRW, and VAT by 97.8 billion KRW during the same period. Other taxes are expected to increase by 599.3 billion KRW, according to the Ministry.

However, excluding the national strategic technology portion, the scale of tax revenue for large corporations is said to actually expand. In this case (based on the net method), there is no change for low- and middle-income earners and high-income earners, SMEs are expected to see a tax reduction effect of 30 billion KRW, while large corporations are expected to see a tax revenue increase of 16.1 billion KRW. Kim Taeju, head of the Tax Policy Bureau at the Ministry of Economy and Finance, emphasized, "Excluding the national strategic technology sector, there is a tax revenue reduction effect of about 350 billion KRW, so on an annual scale, it can be considered tax-neutral."

Furthermore, when considering the tax revenue reduction effect for the parts extended by this tax law revision, the Ministry explained that most (83%) is attributed to vulnerable groups. Director Kim Taeju added, "The tax revenue effect of the sunset extension is estimated to be about 6 trillion KRW (reduction)," and "Most of the sunset extension items are support systems for low- and middle-income groups and SMEs, which are vulnerable groups."