[Corporate Shackles Corporate Tax] Yoon Promises to Remove Sandbags... Will Reforms Gain Momentum?

Transition Team Begins Reviewing System Reform
Choo Kyung-ho, Finance Minister Nominee, Also Proactive

The core of President-elect Yoon Suk-yeol's economic policy lies in "removing the shackles on businesses." The first key to this is the reduction of corporate tax. This decision is based on the judgment that under the Moon Jae-in administration, various tax burdens caused companies to continuously move overseas, resulting in serious side effects. Since President-elect Yoon is firmly determined to return to complete "marketism," it is expected that the corporate tax reform process will accelerate.

According to political and business circles on the 14th, the Presidential Transition Committee is reportedly reviewing plans to reform the corporate tax system.

In particular, the nomination of Choo Kyung-ho, a member of the People Power Party, as Deputy Prime Minister and Minister of Economy and Finance is also strengthening expectations that corporate tax reform will gain momentum. Choo, who has consistently emphasized "private sector-led growth," is regarded as a representative marketist who, like President-elect Yoon, believes in creating a business-friendly environment to drive growth.

At a press conference held on the 10th after his nomination as Deputy Prime Minister, Choo expressed strong enthusiasm for corporate tax reform, stating, "We will remove the shackles on businesses." Previously, in 2020, he proposed a bill to simplify the current four-tier corporate tax brackets into two tiers and reduce the top tax rate from 25% to 20%.

The business community has also consistently pointed out that South Korea's corporate tax rate is excessively high compared to major advanced countries, hindering corporate competitiveness, and thus expresses considerable expectations for President-elect Yoon.

A business official said, "The time has come to consider lowering corporate taxes in line with global standards," adding, "We hope it will be positively reviewed as a measure to boost corporate vitality." In fact, South Korea's corporate tax rate stands at 25%, which is considerably higher compared to Japan (23.2%), the United States (21%), and the United Kingdom (19%).

Before the Moon Jae-in administration took office, South Korea's corporate tax rate had been steadily lowered to encourage investment. The corporate tax rate, which reached as high as 28% before the 2000s, was reduced to 22% during the Lee Myung-bak administration but reversed back to 25% under the Moon Jae-in administration, influenced by calls for "increased taxation on large corporations."

When South Korea raised its corporate tax rate by 3 percentage points again, the United States lowered theirs dramatically from 35% to 21%, a 14 percentage point drop. Major European countries such as France, the United Kingdom, and Belgium also competed to reduce corporate taxes, creating a business-friendly environment.

Therefore, the market has continuously criticized that South Korea has gone against global standards, providing an excuse for companies to leave the country due to "taxes." In contrast, the United States' significant corporate tax cuts have sparked a "reshoring" trend, bringing domestic factories back to the U.S.

The tax brackets are also complicated with four tiers. South Korea is the only country in the world to have four or more corporate tax brackets. Specifically, the brackets are segmented as follows: ▲ up to 200 million KRW (10%) ▲ 200 million to 20 billion KRW (20%) ▲ 20 billion to 300 billion KRW (22%) ▲ over 300 billion KRW (25%).

Meanwhile, high corporate taxes are also negatively affecting employment. According to the "Employment and Investment Trends of Foreign Companies in Korea" recently released by the Federation of Korean Industries, six out of ten foreign-invested companies did not have hiring plans this year. They cited the unfavorable investment environment, including high corporate taxes, as the cause.