By Lee Hyo-sik
Staff Reporter
A key member of the President-elect Lee Myung-bak's transition committee said Monday that the incoming administration will reduce corporate income taxes to help businesses expand investment and create jobs, strengthening the country's growth potential.
Rep. Choi Kyung-hwan, a member of the Presidential Transition Committee, also said in a radio interview that the corporate tax cut is key to attracting foreign investors and companies.
``The corporate income tax reduction is not a matter of choice, but a matter of life and death for Korea in an increasingly globalized business environment,'' Choi said.
During his presidential campaign, President-elect Lee pledged to cut maximum corporate taxes from 25 percent to 20 percent to help create a more business-friendly environment.
The committee is considering lowering taxes by 1 percentage point per year over the next five years. Currently, companies earning over 100 million won in taxable income are subject to up to 25 percent of corporate income tax.
When asked about concerns over falling tax revenue, Choi said most major economies around the world are engaged in fierce competition to cut corporate taxes as a way of attracting business from outside.
``Hong Kong and Singapore, which impose significantly lower corporate taxes than Korea, have further slashed taxes recently to draw more foreign investors. Also, France currently levies 34.4 percent corporate income tax but plans to reduce the tax to as low as 20 percent. Unless Korea cuts corporate taxes, we will not be able to win over multinational firms,'' he stressed.
The lawmaker estimated that tax revenue will shrink by 7 trillion won if the corporate tax rate is slashed by 5 percentage points, but said its impact on state coffers will not be as severe as the envisioned tax cut.
``Some worry that the tax cut will adversely affect government spending on social welfare-related programs. But it will give more money back to businesses and individuals, which will boost private consumption, business activity and job creation,'' he said.
Touching on Lee's pledge to lower mobile phone, telephone and broadband Internet fees by 20 percent, Choi said telecom companies have taken steps to lower telecommunication service charges, adding the cost could decrease by up to 30 percent in a year or two.
He then said the incoming administration will soon reduce taxes on gasoline and other oil products by 10 percent in line with Lee's pledge aimed at easing the financial burden on businesses and households in the wake of surging international oil prices.
``The tax cut on oil products will soon be implemented as political parties have already agreed to do so after the new government comes into power late this month,'' Choi said.
As for Korea's macroeconomic outlook, he said despite high oil prices and other external negatives, the economy will likely expand 6 percent this year through deregulation, tax cuts and improved labor-management relations.
But most economic research institutes at home and abroad have lowered Korea's growth rate to below 5 percent, citing a U.S. economic slowdown, rising global inflationary pressure and other negatives.
leehs@koreatimes.co.kr
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