It has been pointed out that the depreciation accounting system of the Korean International Financial Reporting Standards (K-IFRS), which became effective starting this year, could be a roadblock to corporate investment. Equality issues are rising between non-listed companies, which do not have to introduce the K-IFRS.
The privilege of return adjustment based on the depreciation cost to which a fixed rate method is applied expired at the end of last year. Companies now have to use a straight-line method for their tangible assets such as capital expenditures, and this could pose a greater tax burden on themselves due to lowered costs and higher profits.
This implies that manufacturers, which should make more frequent investments in facilities amid the fast-changing business environments as of late, are facing a bigger tax burden. Meanwhile, non-listed companies are relatively freer from this matter.
“When the straight-line depreciation is applied to the construction of our new plants, early-stage depreciation is decreased and corporate tax increases, even when profitability is improved,” said an anonymous industry source. A financial executive officer echoed by saying, “The new method causes taxes to surge even for the durable years and this is not recovered unless the investment itself is stopped, which could lead to less investments in the corporate sector.”
“The new system is hindering investment attraction at least to some extent,” said another industry insider, continuing, “This could pose some problems with new investments being required due to accelerating product cycles.”