KERI Calls for Expansion of R&D-related Tax Credits
The Korea Economic Research Institute announced on Nov. 10 that the total deduction and reduction applied to South Korean enterprises’ corporate taxes was equivalent to 8.4 percent of the taxes in 2019 whereas the ratio was as high as 24.8 percent in Japan. It also said that the ratio was 18.6 percent in the United States in 2018.
“As a result, the difference between the nominal and effective corporate tax rates stood at 1.4 percentage points in South Korea whereas the nominal corporate tax rate exceeded the effective rate by a margin of 3.3 percentage points in the United States and Japan,” it said, adding, “This has to do with the fact that tax incentives for large companies are insufficient in South Korea, where the deduction and reduction for large and non-large companies was 5.1 percent and 20.1 percent in 2019, respectively.”
The institute pointed out that R&D-related tax credits should be expanded for South Korea’s corporate tax reduction and deduction to become closer to those of the United States and Japan. “In the two countries, tax credits for large companies are up to 10 percent of their R&D costs,” it explained, adding, “The ratio stands at 2 percent in South Korea.”
It also said that the minimum corporate taxes should be repealed for corporate tax deduction and reduction to become more effective. The United States cut its corporate tax rates and repealed its minimum corporate taxes in 2017. Japan has no minimum corporate taxes, either. “An increase in income and cost deductions for a decrease in taxable income can be another useful tool for more tax incentives,” it explained.