Korean Finance Minister Pledges Corporate Tax Cuts

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

18 March 2008

Korea's newly appointed Finance Minister, Kang Man-soo earlier this month pledged to cut corporate taxes, as part of a government drive to boost economic growth.

Newly elected President, Lee Myung-bak had already signalled tax reform plans with this aim in mind, and Kang revealed in a report to the President that he intends to slash corporate tax rates to between 11% and 22% in 2009, and to bring then down again, to between 10% and 20%, by 2013.

At his inauguration late last month, President Lee Myung-bak reiterated pledges to boost the country's economy, promising to take a pragmatic approach.

Lee's transition team had previously released details of several tax cuts for the business sector, key among which was the extension of corporate tax breaks for 29 types of business.

An investment tax credit program, which permits a 7% of capital expenditure deduction for businesses in the sectors in question, was launched in 2000, and has since been renewed on an annual basis.

However, the measure expired in December 2007, and requests for its extension were refused by the previous administration, which was noted by foreign businesses in particular for its non-business friendly stance.

Lee explained at the time that:

"Economic revival is our most urgent task. New engines of growth must emerge assuredly, the economy grow vigorously and more jobs be created. We will start with the government and transform it into a lean and capable organization. We shall increase our effectiveness by applying big-market principles to small government."

Other measures announced by the new Korean President's team to boost the economy included the lifting of restrictions on inter-company investment, and ownership by non-commercial companies of commercial banks.

Lee is reported to be aiming for 6% growth this year, although this is thought by many observers to be over-optimistic.

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