By Yoon Ja-young
Businesses have demanded the government rethink its plan to levy taxes on "excess" corporate cash reserves.
Strategy and Finance Minister Choi Kyung-hwan is pushing a plan to force companies to use their reserves to generate greater dividends and pay more to their employees as part of efforts to boost domestic consumption.
Choi held a meeting Tuesday with the heads of five business lobby groups ― the Korea Chamber of Commerce & Industry, Federation of Korean Industries (FKI), Korea Employer's Federation, Korea International Trade Association and Korea Federation of SMEs.
At the meeting, Choi said the new economic team will provide tax incentives for companies that actively invest, and pay higher wages and dividends with their piled up cash. However, business leaders demanded an overhaul of his campaign against building up cash reserves.
Reserves are primarily comprised of profits and capital surpluses. Major conglomerates almost doubled their internal reserves over the past five years, drawing criticism that they are shunning making investments or sharing their gains with households as wages or dividends.
Choi, who started as finance minister last week, hinted on a number of occasions that the government would consider measures to induce businesses to pay more in dividends or salaries, instead of piling up excessive cash.
However, businesses are concerned about the taxation plan.
"The taxation on internal reserves may have more side effects than its necessity as a policy. Please make a careful judgment with a little broader discussion," said GS Group Chairman Huh Chang-soo, who heads the FKI.
After the meeting, Choi told reporters that the government doesn't intend to collect more taxes.
"As the business circle raised concern that there may be too aggressive taxation on internal reserves, I explained to them the government doesn't plan to levy more taxes," Choi said. "We seek to have businesses' profits flow into households, as dividends or wages."
He added that the government will make sure not to increase the overall tax burden on the businesses.
Hence, the government is expected to give tax incentives for businesses that pay dividends and higher wages or make investments to decrease the internal reserves.
Choi pointed out that the economy is facing a structural problem, continued low-growth over recent years.
"The players in the economy have lost confidence. Households aren't consuming, and businesses aren't making investments…It is worrisome that the weakening of economic sentiment may lead to a contraction of the real economy," the minister said.
He urged the business leaders to make investments and create jobs.
"They say the economy is in a negative condition, but Korea has the experience of developing while overcoming numerous obstacles. If the business circle and the government have a common goal, we can make it an opportunity for the economy to make a leap forward," he said.
The minister said he would open a hotline for better communication with those in business.
Businesses have demanded the government rethink its plan to levy taxes on "excess" corporate cash reserves.
Strategy and Finance Minister Choi Kyung-hwan is pushing a plan to force companies to use their reserves to generate greater dividends and pay more to their employees as part of efforts to boost domestic consumption.
Choi held a meeting Tuesday with the heads of five business lobby groups ― the Korea Chamber of Commerce & Industry, Federation of Korean Industries (FKI), Korea Employer's Federation, Korea International Trade Association and Korea Federation of SMEs.
At the meeting, Choi said the new economic team will provide tax incentives for companies that actively invest, and pay higher wages and dividends with their piled up cash. However, business leaders demanded an overhaul of his campaign against building up cash reserves.
Reserves are primarily comprised of profits and capital surpluses. Major conglomerates almost doubled their internal reserves over the past five years, drawing criticism that they are shunning making investments or sharing their gains with households as wages or dividends.
Choi, who started as finance minister last week, hinted on a number of occasions that the government would consider measures to induce businesses to pay more in dividends or salaries, instead of piling up excessive cash.
However, businesses are concerned about the taxation plan.
"The taxation on internal reserves may have more side effects than its necessity as a policy. Please make a careful judgment with a little broader discussion," said GS Group Chairman Huh Chang-soo, who heads the FKI.
After the meeting, Choi told reporters that the government doesn't intend to collect more taxes.
"As the business circle raised concern that there may be too aggressive taxation on internal reserves, I explained to them the government doesn't plan to levy more taxes," Choi said. "We seek to have businesses' profits flow into households, as dividends or wages."
He added that the government will make sure not to increase the overall tax burden on the businesses.
Hence, the government is expected to give tax incentives for businesses that pay dividends and higher wages or make investments to decrease the internal reserves.
Choi pointed out that the economy is facing a structural problem, continued low-growth over recent years.
"The players in the economy have lost confidence. Households aren't consuming, and businesses aren't making investments…It is worrisome that the weakening of economic sentiment may lead to a contraction of the real economy," the minister said.
He urged the business leaders to make investments and create jobs.
"They say the economy is in a negative condition, but Korea has the experience of developing while overcoming numerous obstacles. If the business circle and the government have a common goal, we can make it an opportunity for the economy to make a leap forward," he said.
The minister said he would open a hotline for better communication with those in business.
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