Corporate Tax Brackets Reduced by 1 Percentage Point
Police Bureau Cuts Personnel Information Unit Budget by 50%
Public Rental Projects Increased by 660 Billion Won
[Asia Economy reporters Naju-seok and Kim Young-won] The ruling and opposition parties agreed on the budget for next year on the 22nd. The contentious corporate tax will be reduced by 1 percentage point for each current tax base bracket, and the budgets for the Ministry of the Interior and Safety’s Police Bureau and the Ministry of Justice’s Personnel Information Unit will have their operating expenses cut by half. The financial investment income tax will be deferred for two years, and the stock capital gains tax threshold will be maintained at the current standard.
On the day, Joo Ho-young, floor leader of the People Power Party, Park Hong-geun, floor leader of the Democratic Party of Korea, and Deputy Prime Minister for Economy Choo Kyung-ho held a press conference at the National Assembly to announce the agreement on next year’s budget and key issues.
According to the agreement signed by the floor leaders of both parties, the ruling and opposition parties reached a compromise by each stepping back slightly on the issues they had previously insisted on. Regarding corporate tax, the parties went one step further than the 1 percentage point reduction in the top tax rate mediated by the Speaker of the National Assembly, agreeing to reduce each current tax base bracket by 1 percentage point. Initially, the ruling party had demanded a 3 percentage point cut, while the opposition party opposed any reduction in corporate tax.
For the Police Bureau and Personnel Information Unit, although the Speaker’s mediation proposal to allocate the budget through contingency funds was considered, the final agreement was to cut operating expenses by 50%. In particular, both sides agreed to prepare alternatives when revising the Government Organization Act for these bodies, which had been controversial for violating current laws.
Regarding the budget, the opposition party’s demand to allocate 352.5 billion KRW for local love gift certificates was accepted. This reflected the opposition party’s request. Additionally, for the public housing loan project, the government’s original budget proposal was maintained, and the budget for the public rental housing jeonse loan project was increased by 660 billion KRW.
Both parties also agreed to increase the budget for public senior citizen jobs and support for cooling/heating and rice expenses at senior centers (95.7 billion KRW). Furthermore, to stabilize rice prices, the budget for the strategic crop direct payment project was increased by 40 billion KRW.
The Democratic Party’s proposal to abolish the basic pension couple reduction was not reflected in this budget but will be discussed further in the future.
Along with corporate tax, related tax laws accompanying the budget were also agreed upon that day. The financial investment income tax will be deferred for two years following behind-the-scenes negotiations between the ruling and opposition parties, but the major shareholder threshold for stock capital gains tax will be maintained. Initially, the government and the People Power Party had proposed raising the major shareholder threshold from the current 1 billion KRW to 10 billion KRW. The securities transaction tax will be gradually reduced.
The comprehensive real estate tax will have a deduction amount of 900 million KRW (1.2 billion KRW for single-home households), and the basic tax rate will be maintained for up to two houses regardless of whether the area is a regulated zone. For three or more houses, progressive taxation will apply starting from a tax base of 1.2 billion KRW. The tax rate ranges from 2.0% to 5.0%.
For the business succession deduction, the mid-sized company sales standard will be raised to 500 billion KRW, and the deduction limit will be increased to a maximum of 60 billion KRW.
A special account for high school and lifelong education support will be introduced for three years on a temporary basis. Next year, 200 billion KRW in additional transfers from the general account and 1.5 trillion KRW in education tax revenue budget will be invested as resources.
The ruling and opposition parties also agreed to proceed smoothly with the state audit on the Itaewon disaster through their agreement on current issues.
Sunset laws are scheduled to be processed at the plenary session on the 28th. Related laws mentioned include the National Health Insurance Act, National Health Promotion Act, Freight Truck Transportation Business Act, Labor Standards Act, Korea Electric Power Corporation Act, and Korea Gas Corporation Act.
Although the ruling and opposition parties succeeded in agreeing on the budget, the final agreement was reached 20 days after the legal deadline of the 2nd. The parties tentatively agreed to process next year’s budget by 6 p.m. on the 23rd. Accordingly, concerns about a provisional budget or the opposition party unilaterally revising the budget have been averted.
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