Tax Reform Needed
As Korea's dependence on corporate tax is higher than that of other OECD members, its tax system needs improvement to maintain stable tax revenue, a report from the Korea Economic Research Institute (KERI) says.
KERI, which is affiliated with the Federation of Korean Industries, has made a comparison of tax revenue by tax category among OECD countries. Korea ranked eighth in terms of corporate tax revenue against gross domestic product (GDP). Korea placed 30th in terms of income tax burden and 31st in consumption tax burden.
“The level of Korea’s corporate tax revenue against GDP is still on the rise, which goes against the international trend of falling corporate tax burden,” said Lim Kyung-won, a KERI research fellow. “The high percentage of corporate tax needs to be revised down at a time when an economic slowdown is highly likely to come. He suggested that corporate tax burden be lowered together with a hike in income tax and consumption tax burdens to maintain the overall level of tax revenue.
Specifically, Lim suggested that the Korean government lower Korea’s top corporate tax rate to 22 percent and narrow the tax brackets in line with the global trend toward corporate tax reduction.
In addition, Lim advised tax authorities to make a change in Korea’s overall taxation structure by gradually reducing taxation exemptions and cuts and decreasing benefits for simplified tax payers.
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“Most OECD countries encourage their companies not to leave their countries and induce investment from foreign counties by cutting corporate tax these days,” Lim said. “So, it is important to lower the corporate tax burden level.”