South Korea Considers Corporate Tax Cuts

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

05 March 2003

The South Korean government is said to be considering cuts in corporate tax in a bid to keep up with other competitors in the region such as Hong Kong, Singapore and Taiwan.

Finance Minister Kim Jin-pyo said in a radio interview this week "The government will lower corporate tax rates so they are competitive, at least in Asia." He added that "the corporate tax rate is relatively high and there are too many exemptions. The tax policy will be shifted to lower tax rates and reduce loopholes".

Given the current state of bad relations between north and south, and the threat of war in Iraq stunting an already fragile world and regional economy, the finance ministry's economic policy division director general, Bahk Byong-wong agreed the need for such a cut is particularly pressing, and a reduction in corporate tax is "inevitable". He argued that other measures aimed at stemming a possible downturn had failed, adding "We are now working on detailed curtailment plans. We have the firm belief that stimulating corporate investment should be the best way to keep the economy on track".

At present, South Korea's corporate tax rate stands at 27%. This compares to rates of 16% in Hong Kong, 22% in Singapore, and 25% in Taiwan. Local media reports have speculated that the Korean finance ministry intends to cut the rate to as low as 22%, though this has been denied by official channels. However, it seems likely that some kind of reduction will take place when the government reveals its tax reforms later in the month.

Recognising that multinational firms may have snubbed Korea in favour of investing in regional competitors, Kim said "we need to provide them with better conditions for doing business here compared with other Asian countries. This will also help raise the productivity of local companies".

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