Could BOK be exempt from corporate tax under new administration?

The Bank of Korea's headquarters in central Seoul is seen in this April 27, 2023 file photo. Joint Press Corps

There has been renewed interest in whether a bill exempting the Bank of Korea (BOK) from corporate tax could pass under the new administration next month, according to financial industry officials and politicians on Tuesday.

Supporters of the bill argue that the exemption is necessary to eliminate the central bank’s double taxation structure and to strengthen its independence.

Yun Ho-jung, chief of the Democratic Party of Korea’s (DPK) election campaign committee, noted Tuesday that discussions on the bill are likely to resume along with other pending legislation after the June 3 presidential election and the return to regular parliamentary proceedings.

“It is necessary to address the central bank’s double taxation issue and enhance its institutional independence,” Yun said.

In February, Yun submitted bills to amend the Bank of Korea Act and other related laws in a bid to exempt the central bank from corporate tax.

Yun criticized the current system, under which the BOK, despite being a state-run entity established without capital to carry out monetary and credit policies, is still subject to corporate tax.

The central bank pays taxes on profits generated from financial operations such as open market activities and foreign asset sales.

Yun argued that this tax structure is inappropriate, as the BOK has no private shareholders and all of its earnings are returned to the government. As a result, he claimed, taxing those profits does not contribute to improving public finances.

Most major central banks, including those in the United States, Germany, Australia and Switzerland, are exempt from corporate tax.

Last year, the BOK posted a net profit of 7.8 trillion won ($5.5 billion), with corporate tax exceeding 2.5 trillion won, driven by strong foreign asset management profits.

This amount surpasses the corporate tax for major companies such as Samsung Electronics, Hyundai Motor and SK hynix.