"Korean Corporate Tax Share 1.3 Times OECD Average... Income Tax and VAT Rates Need to Increase"

"3%P Corporate Tax Cut Leads to 3.5% Increase in Total Investment"
National Economic Advisory Council & KDI, 'The Role of Fiscal Policy for Sustainable Growth' International Conference

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kwon Haeyoung] As the ruling and opposition parties have begun reviewing the tax law amendment bill, a subsidiary bill of the new year’s budget, experts have raised the need for tax reform, including reductions in corporate tax and comprehensive real estate tax.

These claims were made at an international conference held on the 6th at the Fairmont Hotel in Seoul by the National Economic Advisory Council and the Korea Development Institute (KDI) under the theme "The Role of Finance for Sustainable Growth."

An Jongseok, head of the Gaon Tax Policy Research Institute, pointed out that "the ratio of corporate tax revenue to GDP in Korea is 3.4%, which is 130.8% of the OECD average (2.6%)," indicating that Korea’s corporate tax burden is higher compared to other countries. He stated, "Corporate tax is a tax item with a significant distortion effect on resource allocation," and "the recently highlighted issue of tax avoidance by multinational corporations suggests difficulties in increasing corporate tax revenue."

In particular, he criticized that the top tax rate, which reaches 27.5% including local taxes, negatively affects the competitiveness of domestic companies. The OECD average top corporate tax rate is 23.17%.

Professor Kim Woochul of the Department of Taxation at the University of Seoul argued, "Reducing the corporate tax burden can not only increase investment and employment but also help maintain the international competitiveness of companies," adding, "With the increase in small shareholders, the primary benefits of corporate tax cuts also significantly accrue to the middle class."

According to KDI research introduced by Professor Kim, lowering the corporate tax by 1% of GDP results in a 0.5% increase in private investment and a 0.4% increase in real GDP. Another domestic study showed that a 3 percentage point reduction in the nominal corporate tax rate decreases total tax revenue, including corporate tax, by 0.5%, but total investment increases by 3.5% in the long term. For large export companies, tax revenue was found to increase by 0.2%.

There were also claims that property taxation is excessive. The ratio of property tax revenues?including holding tax, transaction tax, and inheritance and gift tax?to GDP in Korea is 4.0%, which is 222% of the OECD average (1.8%).

An said, "The real estate taxation system is excessively complex, and negative effects such as rapid increases in housing prices in the market have emerged," urging, "The heavy taxation system on multiple homeowners should be abolished, and tax burdens should be eased by taxing based on real estate value, simplifying and clarifying the system."

However, regarding income tax and value-added tax (VAT), since their ratios to GDP are 5.3% and 4.2%, respectively, which is about 60% of the OECD averages (8.3% and 7.0%), he suggested that reliance on these two tax items should be increased. An recommended, "To increase income tax revenue, the deduction system and tax rates should be reformed to increase the tax burden from the middle class upward, while enhancing transparency in tax policy by reflecting inflation," and "Regarding VAT, considering fiscal sustainability, the tax rate should be raised through national consensus if necessary, and the scope of exemptions should be continuously reduced."