Business Community Calls to Lower Corporate Tax Top Rate to 21% and Increase R&D and Facility Investment Deductions

'2024 Tax Law Amendment Analysis and Evaluation Report'
"Top Inheritance Tax Rate Also Reduced to 30%"

To improve corporate value, it has been argued that the current highest corporate tax rate of 24% should be reduced by 3 percentage points, and that the research and development (R&D) and facility investment tax credit systems should be expanded along with the introduction of a direct refund system.

The Korea Economic Research Institute (KERI), under the Korea Economic Association, stated in its report titled “Analysis and Evaluation of the 2024 Tax Law Amendment” on the 30th that to create a corporate-friendly tax environment and support dynamic economic growth, the government needs to improve and supplement the tax law amendment announced this year.

In the report, KERI analyzed that the corporate tax-related parts of this year’s tax law amendment excluded reductions in corporate tax rates and expansions of R&D and facility investment tax credits, and that extensions of the application period for national strategic technology tax credits were only minor revisions. Furthermore, while significant support for corporate-related tax systems is necessary to enhance corporate competitiveness and economic dynamism, this tax law amendment was evaluated as somewhat passive.

Lim Dong-won, a senior research fellow at KERI, argued, “To fundamentally improve corporate value, the highest corporate tax rate should be lowered from 24% to 21%, a 3 percentage point reduction, and the R&D and facility investment tax credit systems should be expanded.” He added, “It is necessary to introduce a direct refund system to facilitate corporate financing and provide highly effective support.” Additionally, he emphasized, “Including dividends in the income circulation targets of the investment and win-win cooperation promotion tax system as an additional dividend promotion measure under the shareholder return promotion tax system would create a synergistic effect.” Earlier, the government announced in July that it would temporarily implement the ‘shareholder return promotion tax system’ for three years, providing tax benefits to companies that expand shareholder returns through dividends and treasury stock cancellations.

KERI also viewed that although the recent inheritance tax amendment expanded the scope of business succession deductions and raised the deduction limits, large corporations were excluded from the application, limiting its effectiveness. Although the highest inheritance tax rate was lowered by 10 percentage points from 50% to 40%, it remains higher than the OECD average highest inheritance tax rate of about 26%. Research fellow Lim said, “The inheritance tax rate should be reduced to the OECD member country average level of 30%, the taxable brackets should be further reduced, and the method of estate tax assessment should also be improved.”

In addition, revisions to corporate donations and public interest corporation tax systems are needed. KERI pointed out that since the 2000s, tax support related to donations has been reduced and regulations on public interest corporations have been strengthened. To revitalize corporate donations, it is necessary to expand additional donation deductions and improve tax systems related to public interest corporations. According to the National Tax Service’s National Tax Statistics Portal, corporate donations decreased by 13.7%, from 5.1 trillion won in 2018 to 4.4 trillion won in 2022.

The tax law amendment finalized last month was approved by the Cabinet meeting and is scheduled to be submitted to the National Assembly by the 2nd of next month.