Over the past five years, the shares of income taxes paid by individuals and corporations in the tax revenue of major countries in the Organization for Economic Cooperation and Development (OECD) have both risen. In Korea over the same period, however, the individual burden rate went up while corporations' share actually declined. As the number of employed people increased and nominal wages rose, the tax base for earned income strengthened. But corporations saw profits shrink, and the previous administration also lowered the corporate tax rate.
According to the Taxes revenue statistics published annually by the OECD, the share of personal income taxes in Korea's tax revenue rose from 18.4% in 2018 to 19.8% in 2023. Personal income taxes include taxes on earned income and on capital gains such as dividends. Over the same period, the share of corporate taxes fell from 15.7% in 2018 to 14.4% in 2023.
This contrasts with the trend in which the average shares of personal income taxes and corporate taxes both expanded across the 38 major OECD countries over the past five years. The average share of personal income taxes in total tax revenue across the 38 countries rose from 23.1% in 2018 to 23.7% in 2023. The share of corporate taxes also expanded from 10.1% in 2018 to 11.9%.
◇ In Korea, the tax base for workers has expanded... corporations face weaker results and even a tax cut
The rising share of personal income taxes in tax revenue stems from growth in employment and nominal wages due to economic growth. Korea logged growth in the 2% range in 2018–2019, contracted in 2020 as COVID-19 spread, then rebounded with 4.3% growth in 2021 and 2.6% in 2022. Growth was 1.4% in 2023. Still, the number of workers steadily increased and wages rose. The number of salaried workers in Korea increased from 13.87 million in 2018 to 16.43 million in 2023. The average monthly income of wage earners rose from 2.97 million won in 2018 to 3.63 million won in 2023.
Corporate profitability, which is linked to corporate taxes, worsened over five years. According to the Korea Exchange (KRX), revenue at companies listed on the KOSPI and KOSDAQ markets increased from 2,063 trillion won in 2018 to 3,086 trillion won in 2023, but operating profit fell from 165 trillion won to 133 trillion won. The Yoon Suk-yeol administration's move to lower the top corporate tax rate to 24% from 25% starting in 2023 was also a negative for tax revenue. After the inauguration of the Lee Jae-myung administration, the National Assembly last year passed a tax law amendment that restored the top corporate tax rate to 25%, so it has now returned to the previous level.
◇ Lee, as party leader, said "income tax overhaul is needed"... also pushed for an "inflation indexation" system
With the government expanding fiscal expenditure, some say it should consider ways to ease the tax burden concentrated on individuals. President Lee Jae-myung also wrote on social media in Feb. last year, when he was party leader, "With inflation, only nominal wages rise and real wages are flat, yet the tax burden keeps increasing because of the progressive tax structure." National Tax Service Commissioner Lim Gwang-hyeon, then a Democratic Party member of the National Assembly, said in a press release in Feb. last year, "Shortfalls in tax revenue from tax cut policies for large corporations and the ultra-wealthy are being filled by the fragile wallets of salaried workers," adding, "First, the basic income tax deduction should be brought in line with reality, and then an income tax inflation indexation system should be introduced."
Income tax inflation indexation automatically raises the tax thresholds (tax base brackets) in line with the inflation rate. Some 20 OECD members, including the United States, the United Kingdom, and Germany, are said to apply indexation to income taxes. However, the system can cause tax revenue to plunge during periods of rising prices, so fiscal authorities are reluctant. It can also result in relatively larger tax cuts for high-income earners than for the middle- and low-income brackets.