Ruling Party and Government Discuss Plan to Cut Corporate Tax Rate by 3 Percentage Points

Opposition Tax Special Committee Reviews Corporate Tax Rate and Tax Credits
Hankyung Research Institute: "1% Point Cut in Corporate Tax Rate Would Increase Corporate Tax Revenue by 6.3 Trillion Won"
Review of Excessive Valuation of Unlisted Stocks and Double Taxation on Major Shareholders

On the 4th, the People Power Party and the government discussed at the National Assembly a plan to further reduce the corporate tax rate by 3 percentage points, tax credits, and refund measures similar to the U.S. Inflation Reduction Act (IRA).

Song Eon-seok, chairman of the National Assembly's Planning and Finance Committee and a member of the People Power Party, told reporters after the full meeting of the Special Committee on Fiscal Tax Reform that day, "There were many opinions requesting to simplify the corporate tax rate system and to reduce the tax rate by about 3 percentage points."

Im Dong-won, senior research fellow at the Korea Economic Research Institute, who presented at the meeting, proposed lowering the top corporate tax rate from the current 24% to 21% and simplifying the taxable income brackets from four to two. Im said, "Among the OECD countries, only eight, including Korea, have seen an increase in corporate tax rates," adding, "High corporate tax burdens act as a factor that hinders corporate management vitality." He further claimed, "A 1 percentage point reduction in the corporate tax rate would lead to a 3.97% increase in long-term facility investment and a 0.56 percentage point decrease in the unemployment rate," and "corporate tax revenue would also increase by 6.3 trillion won."

Song Eon-seok, Chairman of the National Assembly's Planning and Finance Committee, is presiding over the full committee meeting held at the National Assembly on the 2nd. Photo by Hyunmin Kim kimhyun81@

Discussions were also held regarding tax credits for research and development (R&D) and facility investments. Song said, "The tax credit rate related to R&D is only 2% for large corporations, and there was a request to increase this." While small and medium-sized enterprises conducting R&D receive a 25% tax reduction benefit, the credit rate for large corporations is gradually decreasing to 2%. During the meeting, opinions were raised that differentiating credit rates based on company size, especially focusing on large corporations, could negatively impact the development of new industries such as artificial intelligence (AI) and secondary batteries.

The issue of overvaluation of unlisted stocks was also reviewed. Lee Kang-oh, a tax accountant from the Korea Tax Association, said at the meeting, "Double taxation on unlisted small and medium-sized enterprise stock transactions, such as capital gains tax and securities transaction tax, should be abolished or eased," and "market price evaluation should be improved using the listed stock comparison method." For unlisted companies, owning more than 4% of shares or having a market capitalization of over 1 billion won qualifies one as a major shareholder, who is subject to double capital gains tax ranging from 10% to 25%. Song said, "Samsung Electronics currently has a listed stock price per share, but if it is calculated as unlisted stock, the stock price increases by about five times," adding, "This increases the tax burden accordingly, so we want to correct that."

Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, attended the meeting, and the discussed matters are expected to be partially included in the government’s tax reform plan to be announced in July after further discussions. Additional discussions are also expected at the Planning and Finance Committee’s tax subcommittee.