The Lee Jae-myung administration is seriously considering restoring the corporate tax rate lowered by the previous government to secure tax revenue, while an analysis indicates that even if the rate is raised again, the increase in tax revenue would be limited to about 2 trillion won.
This figure is an estimate based on the altered tax rates applied to last year's corporate performance. If this year's corporate operating profits deteriorate, the increase in tax revenue will decrease further, while the opposite scenario could lead to an increase.
Kim Woo-cheol, a tax expert and professor at the University of Seoul, analyzed the increase in tax revenue resulting from a corporate tax rate hike based on the tax revenue reduction effects stemming from the top corporate tax rate cut announced by the Ministry of Economy and Finance in 2022.
The Ministry of Economy and Finance estimated that the reduction in tax revenue resulting from lowering the top corporate tax rate by 1 percentage point (p) in 2022 would amount to 3.4 trillion won. At that time, the total amount of corporate tax was 103.6 trillion won, and the revenue reduction rate due to the cut in the top corporate tax rate was estimated to be about 3.3%.
Based on this, Professor Kim Woo-cheol noted that estimating the increase in corporate tax when the top rate is raised by 1 percentage point would result in an expected amount of 2.04 trillion won. He explained that if the total corporate tax is 103.6 trillion won and the revenue reduction effect from a 1 percentage point cut in the tax rate is 3.4 trillion won, the calculation using a proportional formula based on last year's corporate tax revenue (62.5 trillion won) could lead to an estimate of 2.04 trillion won (3.4 trillion won * (1-0.4)).
The increase in tax revenue from the corporate tax hike would only represent 0.6% of the total national tax (336.5 trillion won). In this context, Woo Seok-jin, a professor of economics at Myongji University, said, "Even if the top corporate tax rate is increased, tax revenue does not increase significantly," adding that "even if the rate is adjusted now, the actual increase in revenue will not be felt until the year after next. This means it does not help the current tax revenue situation."
Despite these concerns, tax authorities are showing signs of pushing ahead with restoring the corporate tax rate through tax reform plans this year.
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol, during a confirmation hearing on the 17th before his appointment, responded to inquiries about the need for a corporate tax increase by saying, "Upon reviewing our tax revenue, corporate tax fell from about 100 trillion won in 2022 to 60 trillion won last year, a decline of 40%," and emphasized that "in order to transition to a 'real Korea' we need resources for an artificial intelligence (AI) transformation," indicating that he intends to secure resources through corporate tax.
However, there are claims that the decline in corporate tax revenue should be attributed more to worsening corporate performance rather than the tax rate cut.
With the semiconductor industry facing a downturn in 2023, Korea's top two listed companies by market capitalization, Samsung Electronics and SK hynix, reported zero corporate tax for March of last year. At that time, Samsung Electronics recorded a loss of 11.53 trillion won, while SK hynix posted a loss of 4.67 trillion won. The abrupt deterioration in the semiconductor market led to a decrease in corporate performance, resulting in corporate tax revenue in 2024 being 15 trillion won less than the government's initial projection of 77.66 trillion won.
Even within the ruling party, cautious opinions regarding the corporate tax rate increase are emerging. Lee Un-joo, a senior member of the Democratic Party of Korea, appeared on MBC Radio's "Kim Jong-bae's Focus" on the 21st and said, "When the economy is poor, it is very difficult for the private sector to bear the tax burden, and there is not much effect on (tax revenue increase) either," adding, "If the government stimulates the economy and decides to spend, it will create a deficit, and at that point, it would be appropriate to ask for taxes again."