Korea May Cut Corporate Tax In Two Years' Time

by Mary Swire, Tax-News.com, Hong Kong

05 May 2003

Korean deputy Prime Minister and Minister of Finance, Kim Jin-pyo last week indicated that the Korean government may cut the rate of corporate tax in two to three years' time.

It was difficult to lower corporate taxes any earlier than this as there were insufficient funds budgeted in this year's finances to allow for such a cut, the minister said in a statement. However, Kim claimed that any major investment put in place by a firm now would be unlikely to see a profitable return for about three years, and that therefore there was still an incentive for firms to invest in Korea now and benefit from lower taxes in the future.

Corporate income tax is levied at a rate of 15% on the first 100 million won ($82,000) of profit. Thereafter, a 27% rate applies, which is significantly higher than some of Korea's regional competitors. In Taiwan the corporate tax rate is 25%, whilst Singapore levies a 22% rate on profits and Hong Kong 16%.

Recent reports have suggested that the finance ministry is not keen to lower the rate gradually, fearing a shortfall in fiscal finances. However, the Korea Development Institute disputes this, calculating that a 1% decrease would not create a tax shortfall, despite reducing revenues by up to 800 million won ($656,000).

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