Controversy over Corporate Tax Increase

The Korea Institute of Public Finance (KIPF) advised that an increase in corporate tax, which is being called for by opposition parties, will negatively affect South Korea’s long-term potential economic growth rate.
The Korea Institute of Public Finance (KIPF) advised that an increase in corporate tax, which is being called for by opposition parties, will negatively affect South Korea’s long-term potential economic growth rate.

 

The Korea Institute of Public Finance (KIPF), a South Korean government-run think tank, held a policy conference with the National Economic Advisory Council on August 25 at the Korea Chamber of Commerce & Industry located in Seoul and advised that an increase in corporate tax, which is being called for by opposition parties, will further shrink corporate capital investment to negatively affect South Korea’s long-term potential economic growth rate and will be followed by very serious repercussions.

According to the KIPF, the corporate tax imposed on South Korean companies exceeds that levied on those in countries that have similar economic scales and fundamentals. “We have analyzed a total of 182 countries and found that the average of the maximum corporate tax rates of those with a GDP per capita of US$20,000 to US$40,000 is 22%, equal to that of South Korea recording a GDP per capita of approximately US$27,000, and the average of the maximum corporate tax rates of those recording an export-to-GDP ratio of 45% to 60% is 20% with South Korea falling into this category with the ratio at 52%,” it explained, adding, “In most cases, countries with a higher export-to-GDP ratio tend to maintain a low corporate tax rate in that a high corporate tax rate results in the weakening of international corporate competitiveness.”

The institute also pointed out that most OECD member countries have lowered their corporate tax rates since the recent financial crisis and no less than 16 of them have done so in spite of a decline in corporate tax revenue. “Between 2008 and this year, 18 OECD member countries lowered their corporate tax rates whereas only six did the other way around,” it went on to say, continuing, “Japan, in particular, has cut its corporate tax rate by no less than 9.6 percentage points.”

The KIPF stressed that income and consumption taxes should be increased before corporate tax if an increase in tax is inevitable. “At present, the ratio of income and consumption tax revenues to GDP of South Korea is much lower than those of many other countries unlike its corporate tax revenue-to-GDP ratio,” it mentioned. According to its report released that day, South Korea recorded an income tax revenue-to-GDP ratio of 3.6%, a consumption tax revenue-to-GDP ratio of 8.5% and a corporate tax revenue-to-GDP ratio of 3.6% in the 2000s, when the respective OECD averages were 8.8%, 11.1% and 3.3%. 

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