Main Sponsor of the 'Corporate Tax Act Amendment Bill'
"Incentives for Companies Investing in Future Industries"
Ando Geol, member of the Democratic Party of Korea.
On July 31, Democratic Party lawmaker Ahn Dogeol (representing Gwangju Dongnam-eul) announced that he had proposed a revision to the Corporate Tax Act, which aims to restore the corporate tax rate for corporations with a tax base exceeding 20 billion KRW to the levels prior to the 2022 amendment.
The Corporate Tax Act, which was amended in 2022, lowered the tax rates for each tax base bracket by 1 percentage point across the board, adjusting them from the previous 10-25% to 9-24%. At the time of the corporate tax cut, the government argued that easing the corporate tax burden on companies would lead to increased corporate investment, thereby generating a virtuous cycle of economic growth and expanded tax revenue.
However, contrary to the government's expectations, the corporate tax cut did not lead to increased corporate investment, higher economic growth rates, or expanded tax revenue. Corporate tax revenue decreased from 103.6 trillion KRW in 2022 to 80.4 trillion KRW in 2023 and 62.5 trillion KRW in 2024. The growth rate of private corporate investment also declined for two consecutive years, recording 1.3% in 2023 and 1.0% in 2024.
The economic growth rate was 1.6% in 2023 and 2.0% in 2024, both lower than the 2.7% growth rate recorded in 2022. Furthermore, tax revenue fell short of projections, resulting in large-scale deficits of 56.4 trillion KRW in 2023 and 30.8 trillion KRW in 2024.
Recently, the government also announced a tax reform plan to increase the corporate tax rate by 1 percentage point in all tax base brackets, aiming to expand the tax revenue base and normalize the tax system.
The amendment proposed by Ahn seeks to restore the corporate tax rate for corporations with a tax base exceeding 20 billion KRW to the level prior to the 2022 amendment. This reflects criticism of the previous administration's ineffective tax cuts as well as consideration of the current economic situation and corporate conditions.
According to an analysis of National Tax Service data, 990,000 small and medium-sized enterprises (SMEs) filed corporate tax returns in 2024, accounting for 94% of all corporations. Among them, the total revenue of SME corporations was 2,241 trillion KRW, which is 32% of the total corporate revenue of 7,073 trillion KRW, a relatively low proportion compared to their share of the total number of corporations. Accordingly, Ahn explained that only 0.03% of all SME corporations would see an increase in their corporate tax burden as a result of the amendment, meaning that the vast majority of SMEs would effectively not be affected.
Ahn stated, "It is necessary to implement a rational tax reform that restores the tax revenue base, which was undermined by the previous administration, while taking into account the entrenched low growth and the business conditions of SMEs." He emphasized, "To genuinely promote corporate investment, we should shift from across-the-board tax cuts to expanding incentives for investment in future core industries such as semiconductors and AI."
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