South Korea's Parliament Delays Tax Cuts

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

31 December 2009

A South Korean parliamentary committee has approved a delay in the cuts previously planned for corporate taxes and for people on higher incomes.

The original program was to reduce the corporate tax rate for 2010 from the current 22% to 20% for those businesses with a taxable income greater than KRW200m (USD172,000), while also lowering the highest rate of income tax on those individuals earning more than KRW88m from 35% to 33%.

The committee has now agreed that the reductions will be delayed for two years, until 2012. This would be the second time the proposed tax cuts have been changed.

However, if the proposed changes later pass through parliament, income and corporate tax rates for the lower paid (presently between 16% and 25%) and smaller businesses (currently 11%) would continue to be reduced by 1% in 2010.

The delay to the tax cuts for larger companies has drawn some criticism, as it may harm the prospects for business improvements next year as the economy comes out of recession, and for increased corporate investment as the country competes with those Asian economies with lower company taxes, such as Singapore.

The committee also proposed to restrict the period allowed for the authorities to look into the tax affairs of most companies to a maximum of 20 days. Investigations longer than that will only be allowable after the proper procedures have been followed.

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