It is reported that the tax reform plan, announced for the first time since Lee Jae-myung's government took office, will incorporate extensive measures for securing tax revenues.
This aims to generate tax revenue by reversing the tax cut measures of the previous government. There is an analysis indicating that as the economy contracts, the role of fiscal policy must be expanded, and securing tax revenues is essential for preparing government funds to leap toward becoming a leader in artificial intelligence (AI).
Comprehensive coverage of the Ministry of Economy and Finance indicates that the top tax rate, which was lowered by 1 percentage point (p) through the 2022 tax law amendment, is expected to be raised again.
The core reasons are the complex economic slowdown both domestically and internationally, along with declining corporate performance; however, there are observations that the tax cut policies have impacted the corporate tax revenue, which decreased from about 100 trillion won in 2022 to around 60 trillion won last year—a reduction of around 40%.
Within the government, there is a view that raising the corporate tax rate is key to expanding tax revenues. A Ministry of Economy and Finance official noted, "It is an urgent situation to secure resources for investments in future food sources, such as AI, alongside the fiscal role." The ruling Democratic Party of Korea has already moved to formalize the corporate tax increase in the regular session of the National Assembly.
However, some argue whether it is appropriate to raise the corporate tax rate in a situation where companies urgently need to expand investment and employment due to the economic contraction. They warn that raising the corporate tax rate could lead to a decline in corporate investment and employment.
Moreover, with fierce competition globally to attract domestic capital through corporate tax cuts, it has been pointed out that if we alone raise corporate taxes, we will be tying our own hands in the competition to attract global corporations.
Professor Woo Seok-jin of Myongji University said, "I opposed the corporate tax cut during the Yoon Suk-yeol government, but I don't think raising it again at this point is the right answer," adding, "We need to clearly assess how much tax revenue will increase if we raise the maximum corporate tax rate by 1 percentage point and make a decision."
Professor Woo noted, "U.S. President Donald Trump has declared that he will lower the corporate tax rate to 15%, and it is expected that competition for corporate tax cuts will intensify internationally," adding, "It's unthinkable to raise it this year only to cut it again later. We need to carefully assess global trends and make prudent decisions."
In response, a Ministry of Economy and Finance official explained, "We will comprehensively evaluate the expected tax revenue and economic impacts to decide on the corporate tax increase."
It is also reported that the stock tax system is likely to restore the capital gains tax on major shareholders. The previous Yoon Suk-yeol government significantly raised the threshold for the capital gains tax on listed shares from 1 billion won to 5 billion won.
While the intention was to prevent major shareholders from dumping their stocks right before the end of the year, resulting in individual investors incurring losses, the evaluation is that it effectively only alleviated the tax burden for a small number of wealthy asset holders.
The reduction in the securities transaction tax is also expected to be normalized to some extent. Earlier, the government decided to gradually lower the securities transaction tax rate while introducing the financial investment income tax (the 'gold tax'), but the transaction tax alone was lowered even though the introduction of the gold tax was shelved. While this was a measure considering the negative impacts on the stock market, it has been criticized for providing excessive tax benefits solely for capital income, unlike earned income.
Alongside this, it appears that taxes will be applied to what is called the "tax loophole" of reduced dividends. Reduced dividends involve distributing shares through capital reduction, which unlike regular dividends sharing net profits, are not taxed. This has led to concerns that it may be misused for tax avoidance by major shareholders. Koo Yoon-cheol, the new Deputy Prime Minister and Minister of Economy and Finance, also expressed his intention to improve this issue in a written response during his confirmation hearing, stating, "Reduced dividends are not fundamentally different from general dividends."