[Tax in Focus] Rushing Through First Read... Ruling and Opposition Seek Compromise on Key Bills

Debate Begins on Key Bills Including Corporate and Education Taxes
Differences Delay Progress, But Consensus on Alternatives Emerges
Next Meeting to Focus on Separate Taxation of Dividend Income

"There are a lot of people attending, but the subcommittee meeting room seems too small. We should move to a larger room." "A smaller space actually helps convey opinions better, and people are less likely to leave in the middle, so things can move faster."

This was the scene at the Tax Subcommittee of the National Assembly's Planning and Finance Committee on the 18th. When the morning break arrived, one of the subcommittee members requested that the meeting be moved to the main conference room. However, Park Sooyoung, the committee chair from the People Power Party, insisted that the smaller room was better. This was a deliberate choice to increase the intensity and efficiency of the meeting. With 516 bills to review-about twice as many as last year-members must accept some discomfort in order to secure enough time to examine each bill.

In fact, the subcommittee's schedule is extremely tight. The goal is to complete the final review and decision on all bills under consideration by the 28th. The government’s proposal to raise all four corporate tax brackets by one percentage point revealed differences between the ruling and opposition parties, leading to a decision to put the amendment on hold.

However, there were some tangible results from the discussions. The ruling party suggested an alternative-proposed by Democratic Party lawmaker Ahn Dogeol-that only the higher brackets (over 20 billion won up to 300 billion won, and over 300 billion won) should be raised by one percentage point, since many small and medium-sized enterprises fall into the lower brackets (up to 2 billion won, and over 2 billion won up to 20 billion won). The subcommittee has requested data from the government showing the tax amounts by bracket with the proposed increase applied. Park stated, "If the increase in tax revenue from self-employed individuals or small business owners is not significant, there may be room to consider relief for small and medium-sized enterprises," indicating the possibility of reaching an agreement.

The amendment to the Education Tax Act, which would raise the education tax rate imposed on financial and insurance businesses with annual revenue of over 1 trillion won from 0.5% to 1%, was also put on hold. The subcommittee asked the government to investigate issues of fairness in the tax system, since the education tax is an indirect tax similar to value-added tax and a progressive structure could create inconsistencies. When The Asia Business Daily asked about the plan for handling the pending key bills, Park explained, "Once we receive the requested data from the government, we will resume discussions immediately, even if it is on a day scheduled for reviewing other bills."

The Tax Subcommittee of the National Assembly's Planning and Finance Committee discussed key bills including amendments to the Corporate Tax Act and the Education Tax Act at the National Assembly on the 18th.

Regarding the discussion on the separate taxation of dividend income, attention is focused on Democratic Party lawmaker Lee Soyoung. When the government announced its tax reform plan, it said it would introduce separate taxation for dividend income and set the top tax rate at 35%. However, Lee strongly objected, arguing that this was less effective than the existing top comprehensive income tax rate (45%) and inconsistent with the top capital gains tax rate for major shareholders (27.5%). As a result, the ruling party and the government are now leaning toward the opposition's proposal-and Lee's suggestion-to lower the top rate to 25%, making an agreement likely.

As for the eligibility requirements, the opposition is calling for relaxation or abolition, while Lee insists on targeting listed companies with a dividend payout ratio of at least 35%. The government, on the other hand, defines eligible companies as those with a dividend payout ratio of at least 40%, or at least 25% if their average dividend over the past three years has increased by more than 5%. Intense debate is expected. Taking into account Lee's schedule-she is also the ruling party's secretary on the Special Committee on Budget and Accounts and serves on the adjustment subcommittee-the Tax Subcommittee plans to meet on the 20th or the 24th to prioritize the discussion on separate taxation of dividend income.