The heavy taxes for the rich levied by the past Moon Jae-in administration will be lifted soon. Under the tax code revision outline unveiled last Thursday by the Ministry of Economy and Finance, the Yoon Suk-yeol administration proposes sweeping tax cuts to invigorate domestic demand and private-led growth.
First of all, the income tax for the middle to working class will be lowered. The income base for two lower tax rates for earners of annual wage of 88 million won ($67,050) or under will be lifted by 2 million won. Those earning 50 million won a year will save income tax dues of 360,000 won a year and those earning 78 million won a year 540,000 won.
The maximum corporate tax rate also is coming down. The top tax rate that had been hiked to 25 percent under the previous administration would return to 22 percent, but nevertheless it is higher than the 21.5 percent average of the member countries of the Organization for Economic Cooperation Development. A lowered tax rate could encourage more investment in Korea by domestic and foreign companies.
The threshold for small and midsized companies subject to the special tax rate of 10 percent will be hoisted up to 500 million won from 200 million won to widen the tax benefit in hopes of persuading smaller companies to increase investment and hiring. The surcharge on multiple homeowners will be scrapped to impose a tax based on the total value of properties instead of the number of homes they own.
The cuts would reduce tax revenue of 13 trillion won annually from next year to 2026. Managing public finance so as not to widen the fiscal deficit will be a challenge for the new administration. The conservative government is under pressure to tend to the fiscal health that was worsened by massive spending under the previous government. Radical deregulation can be the sole realistic solution for fiscal health. If regulations are removed, companies can increase investment and revenue, which in return can boost tax revenue. If hiring expands, increasing household income could also help boost domestic demand.
The tax revision proposal requires approval from the National Assembly dominated by the Democratic Party (DP) who opposes cuts in the tax rates for rich companies and individuals. DP floor leader Park Hong-keun vowed to block the move. But corporate tax rate can affect corporate competitiveness in the border-less competition. Finance Minister Choo Kyung-ho pointed out that over 60,000 jobs were lost to overseas due to high tax rates for the corporate sector. The DP could use its majority power against the new government suffering low approval rating. But it must not oppose the rationalization of tax rate system aimed at revitalizing the economy.