'Reversal of Yoon's Tax Cuts': Corporate Tax Hike to Hit SMEs Too... KRW 4.5 Trillion Added Burden for Businesses [2025 Tax Reform]

First Tax Reform Plan of the Lee Administration... Reversing Yoon Administration's Tax Cuts
'Trickle-down Effect Is a Myth'? Straightforward Tax Hike for Fiscal Expansion
Corporate Tax Raised Across All Brackets... Back to 10-25% Next Year
'Tax Hike Drive' in Motion
"Corporate Tax Increase Alone Won't Solve Revenue Shortfall"
"US Attracts, We Push Away"

The Lee Jaemyung administration will revert the corporate tax system to the level it was three years ago. By uniformly raising the tax rate for all corporate tax brackets by 1 percentage point, not only large corporations but also small and medium-sized enterprises will face increased tax burdens starting next year. The criteria for major shareholders subject to capital gains tax on stock transfers will be strengthened, and the reduction in securities transaction tax, which had been pursued on the premise of introducing a financial investment income tax, will also be reversed.

This move is intended to collect more taxes from large corporations and high-income earners, who are relatively more capable of bearing the tax burden, as it has become increasingly difficult to secure tax revenue amid prolonged low growth. It is interpreted as a clear shift toward a tax increase policy, directly criticizing the 'trickle-down effect myth' of the Yoon Sukyeol administration, which advocated tax cuts to spur economic growth, and aiming to use the funds raised from increased taxes on large corporations and the wealthy to improve income distribution. There is also criticism that, while the United States is attracting investment from Korean manufacturing companies through tariff policies, the Korean government is instead driving these companies away with anti-business policies.

The Ministry of Economy and Finance held a Tax System Development Review Committee on the 31st and finalized the '2025 Tax Reform Plan' containing these measures. First Vice Minister of Economy and Finance Lee Hyungil stated, "Over the past three years, the tax revenue base has rapidly weakened, and as a result, the tax burden ratio has significantly decreased," adding, "This tax reform focuses on strengthening the weakened tax revenue base to support Korea's leap toward becoming an economic powerhouse and to ensure fiscal sustainability while also supporting public welfare."

First Tax Reform Plan of the Lee Administration... Reversing Yoon Administration's Tax Cuts
'Trickle-down Effect Is a Myth'?Straightforward Tax Hike for Fiscal Expansion
Corporate Tax Raised Across All Brackets... Back to 10-25% Next Year

The core of the first tax reform plan under the Lee Jaemyung administration is to increase tax revenue. The plan is to restore the tax cuts implemented under the Yoon administration to their original state in order to strengthen the tax base. The main focus is the corporate tax hike. The tax rate for all four corporate tax brackets will be raised by 1 percentage point each. Currently, the corporate tax rates are: 9% for taxable income up to KRW 200 million; 19% for KRW 200 million to 20 billion; 21% for KRW 20 billion to 300 billion; and 24% for over KRW 300 billion. With a 1 percentage point increase, the new rates will be: 10% for up to KRW 200 million; 20% for KRW 200 million to 20 billion; 22% for KRW 20 billion to 300 billion; and 25% for over KRW 300 billion.

The government believes that even a 1 percentage point increase across all brackets will deliver the intended effect of increased tax revenue. If the reform plan passes the regular session of the National Assembly this year as planned, it will apply to business income from next year.

As a result, not only large corporations but also small and medium-sized enterprises will face higher tax burdens. The government expects that the corporate tax burden will increase by a total of KRW 4.5815 trillion due to this tax reform. A significant portion of the total increase in tax revenue from this reform (KRW 8.1672 trillion) will be borne by corporations. The burden on large corporations (KRW 4.1676 trillion) accounts for more than half.

The scope of those subject to capital gains tax on stock transfers will also be expanded. The threshold for major shareholders subject to capital gains tax will be lowered from the current KRW 5 billion to KRW 1 billion, reversing the reduction made under the Yoon administration. The current securities transaction tax rate of 0.15% will also be raised to 0.20%. The securities transaction tax is levied when stocks are sold, regardless of whether there is a profit. Since a significant portion of the securities transaction tax comes from individual investors, some point out that raising the rate may not have a substantial effect on overall tax revenue. Regarding this, Park Geumcheol, Director General of Tax Policy at the Ministry of Economy and Finance, explained, "The reduction in the securities transaction tax was pursued on the premise of introducing the financial investment income tax," and "With the financial investment income tax abolished, we are correcting the abnormal situation where only the securities transaction tax remains reduced."

For large financial and insurance companies, the education tax rate on profits exceeding KRW 1 trillion will be raised by 0.5 percentage points, from 0.5% to 1.0%. The Ministry of Economy and Finance stated, "Currently, a uniform rate of 0.5% is applied, but a new bracket for profits exceeding KRW 1 trillion will be introduced, and a higher rate than the existing 0.5% will be applied." This is the first time since the introduction of the system in 1981, 45 years ago, that a new education tax bracket for the financial and insurance sectors will be established. This move is seen as targeting President Lee Jaemyung's recent criticism of large financial and insurance companies, urging them to expand investment rather than relying solely on easy profits from mortgage loans and similar interest-based businesses.

'Tax Hike Drive' in Motion
"Corporate Tax Increase Alone Won't Solve Revenue Shortfall"
"US Attracts, We Push Away"

By breaking away from the tax cut trend maintained throughout the Yoon administration and shifting to a comprehensive tax increase policy, there is an analysis that the tax cut card did not work to overcome the entrenched low-growth trend. During the three years of the Yoon administration, there was a tax revenue shortfall of about KRW 97.5 trillion, and the need for fiscal expansion is growing due to increased welfare spending resulting from structural changes such as low birth rates and rapid population aging. The government particularly notes that the tax revenue base has significantly weakened, with the tax burden ratio dropping from 22.1% in 2022 to 17.6% in 2024 due to decreases in corporate tax revenue and other factors. Vice Minister Lee explained, "Considering the recent economic situation and the decline in tax revenue, tax cuts did not produce the virtuous cycle of boosting economic vitality and ultimately increasing tax revenue," adding, "(The corporate tax hike is) a move to normalize the tax burden in line with the ability-to-pay principle."

In Korea, the top corporate tax rate was reduced from 28% to 22% during the Lee Myungbak administration, then raised back to 25% under the Moon Jaein administration as part of a policy to increase taxes on large corporations. The Yoon administration, which advocated tax cuts for the wealthy, lowered the tax rates across all brackets, including the top rate, by 1 percentage point through the 2022 tax reform. As a result, the current corporate tax rate, including local taxes, stands at 26.4%, which is lower than the average of the Group of Seven (G7) countries (27.14%) but higher than the Organisation for Economic Co-operation and Development (OECD) average (23.9%).

However, experts believe that the effect of increased tax revenue from this corporate tax hike will be limited. They note that the decline in corporate tax revenue over the past two years was mainly due to a sharp drop in corporate earnings caused by economic downturn, rather than the tax rate cut. Furthermore, an increase in corporate tax burden could worsen the business environment, potentially leading to a vicious cycle where tax revenue decreases further. In fact, during tariff negotiations with the United States, domestic companies have been compelled to significantly increase their investments in the US, whether they like it or not, and Samsung Electronics and Hyundai Motor and other major companies saw their operating profits plummet in the second quarter. With this corporate tax hike, the government is sending a strong negative signal as being anti-business, which could lead to the perception that domestic investment will become even more difficult in the long term.

Lee Yoonsu, professor of economics at Sogang University, said, "In a situation where major companies have to build factories and increase investment abroad due to tariff negotiations, raising the corporate tax rate will not easily expand the tax base," adding, "While the US is making every effort to attract manufacturing to its own soil, we are pushing our companies away with anti-business policies."