By Choi Kyong-ae
The government will likely ease up on its plan to charge taxes on internal reserves held by companies, while offering incentives for them to invest more, analysts said Tuesday.
"Companies say the government's approach violates market rules by infringing on their management rights. So the government is likely to consider this and go easier on them," said Soh Jae-yong, an economist at Hana Daetwoo Securities.
In broad stimulus measures announced last month, the finance ministry vowed to impose taxes on internal reserves to encourage companies' spending. Stimulus plans are designed to push companies to increase wages for their employees, to deliver more dividends to their shareholders and to make investments to revive domestic consumption.
On top of charging taxes on internal reserves, "the government will likely choose to offer some incentives to companies that invest in their domestic production facilities, not overseas," Soh said.
State-run companies will be initially taxed on their internal reserves. There will be a tug of war, however, between the government and private companies over the issues of taxes, dividends and wages, he said.
Given Korea's economy heavily relies on exports and most of the country's listed companies are exporters, the government may find it hard to push its plan forward, Samsung Securities strategist Kim Yong-gu said.
"For major exporters such as Samsung Electronics and Hyundai Motor, they need to put aside some cash for big investments in the future. They cannot use all their cash reserves just to help the government achieve its stimulus programs," Kim said.
Rapidly changing business environments make it increasingly difficult for large firms such as Samsung and Hyundai to make bold investments, the companies argue.
Raising the chances that the government will impose eased taxes on the corporate cash holdings is the fact that the ruling Saenuri Party recently asked it to do so.
Economists say the government's pressure for corporate spending looks "pushy" compared to other countries such as Japan and the U.S.
The Japanese government currently charges taxes on internal reserves of a company where the three largest shareholders collectively own more than a 50 percent stake. In the U.S., the authorities impose an "accumulated earnings tax" on companies' cash holdings only when the companies make an attempt to evade taxes, Kim at Samsung explained.
At the end of 2013, internal reserves of 81 listed non-banking companies of Korea's 10 biggest conglomerates reached 515.6 trillion won ($500 billion). This increased to 515.9 trillion won at the end of March, according to the Bank of Korea.
As companies invest more overseas, economists warned the companies may transfer their cash reserves outside the country to avoid taxes.
The government will likely ease up on its plan to charge taxes on internal reserves held by companies, while offering incentives for them to invest more, analysts said Tuesday.
"Companies say the government's approach violates market rules by infringing on their management rights. So the government is likely to consider this and go easier on them," said Soh Jae-yong, an economist at Hana Daetwoo Securities.
In broad stimulus measures announced last month, the finance ministry vowed to impose taxes on internal reserves to encourage companies' spending. Stimulus plans are designed to push companies to increase wages for their employees, to deliver more dividends to their shareholders and to make investments to revive domestic consumption.
On top of charging taxes on internal reserves, "the government will likely choose to offer some incentives to companies that invest in their domestic production facilities, not overseas," Soh said.
State-run companies will be initially taxed on their internal reserves. There will be a tug of war, however, between the government and private companies over the issues of taxes, dividends and wages, he said.
Given Korea's economy heavily relies on exports and most of the country's listed companies are exporters, the government may find it hard to push its plan forward, Samsung Securities strategist Kim Yong-gu said.
"For major exporters such as Samsung Electronics and Hyundai Motor, they need to put aside some cash for big investments in the future. They cannot use all their cash reserves just to help the government achieve its stimulus programs," Kim said.
Rapidly changing business environments make it increasingly difficult for large firms such as Samsung and Hyundai to make bold investments, the companies argue.
Raising the chances that the government will impose eased taxes on the corporate cash holdings is the fact that the ruling Saenuri Party recently asked it to do so.
Economists say the government's pressure for corporate spending looks "pushy" compared to other countries such as Japan and the U.S.
The Japanese government currently charges taxes on internal reserves of a company where the three largest shareholders collectively own more than a 50 percent stake. In the U.S., the authorities impose an "accumulated earnings tax" on companies' cash holdings only when the companies make an attempt to evade taxes, Kim at Samsung explained.
At the end of 2013, internal reserves of 81 listed non-banking companies of Korea's 10 biggest conglomerates reached 515.6 trillion won ($500 billion). This increased to 515.9 trillion won at the end of March, according to the Bank of Korea.
As companies invest more overseas, economists warned the companies may transfer their cash reserves outside the country to avoid taxes.
![[ANALYSIS] S. Korean economy feared to follow in Japan's footsteps](https://img.koreatimes.co.kr/upload/thumbnailV2/3f9cf9747722448a8fd8da85b041817c.jpg/dims/resize/178/optimize)
![[REVIEW] 'The ODD Of LOVE' concert: Taeyeon shows why she is among K-pop's top vocalists](https://img.koreatimes.co.kr/upload/thumbnailV2/e385d0918b054c1286a1cfaa3142439e.jpg/dims/resize/178/optimize)
![[INTERVIEW] 'One Day Off' star Lee Na-young, director on creating subtle, feel-good series](https://img.koreatimes.co.kr/upload/thumbnailV2/796618f56a44402eabe81fe4530ab988.jpg/dims/resize/178/optimize)
