Corporate tax hike gaining support

By Yoon Ja-young

Corporations are emerging as the next target for a bigger tax burden after the government’s effort to tax salaried people backfired.

Some lawmakers of the governing Saenuri Party are talking about a corporate tax hike, a taboo issue among members of the conservative party.

Their rationale for raising the corporate tax is based on National Tax Service data.

In 2014, income tax collection is expected to increase by 6.9 trillion won from the previous year through a 3 percentage-point tax increase on the wealthy and adjustment of tax returns for wage-earners.

The corporate tax is expected to remain at around 46 trillion won for the second consecutive year.

The effective corporate tax rate went down by 3.58 percent from 2008 to 2013, while the rate for the salaried workers rose by 0.46 percent during the same period.

The previous Lee Myung-bak administration cut the corporate rate to 22 percent from 25 percent in 2009.

Twelve of the Organization for Economic Cooperation and Development (OECD) nations lowered their corporate rates after the global financial crisis.

This was aimed at helping boost business activities.

Already, some have voiced worries that it could dampen corporate investment.

“If the corporate tax burden increases, businesses will cut investment, which will lead to decreased jobs. It will have a negative effect on economic growth,” said Hwang Sang-hyun, a research fellow at the Korea Economic Research Institute.

He said that a 1 percentage point increase in the average effective tax rate decreases corporate investment by 1.3 percentage points.

The sluggish economy is also adding to fears that a corporate tax hike may completely freeze it.

Professor Kang Byung-goo of Inha University, however, points out that conglomerates are not investing as much as the government expects despite the low corporate rate.

The 22-percent corporate tax rate is lower than the OECD average of 23.4 percent.

“Korea’s corporate tax rate is about the same as the OECD average, but when we take into account the employers’ contributions to social security programs, which are de facto taxes on businesses, the total corporate burden is very small compared with other OECD countries,” Kang said.

Korean companies are shouldering only small contributions to social security programs, such as the national pension and health insurance programs.

While the government is focusing on the negative effects of a corporate tax hike, the governing Saenuri Party appears conflicted about the issue.

Party leader Rep. Kim Moo-sung seems to be tilted toward a decrease in welfare instead of a corporate tax hike, while the party’s newly elected floor leader Rep. Yoo Seung-min opened the door to the possibility of a tax hike.

“When we are in a situation in which we have to raise taxes, my idea is that we shouldn’t have a taboo subject in this argument, such as corporate tax should never be raised,” Yoo said in a radio interview Thursday.