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South Korea Unveils Tax Revisions Bill

by Mary Swire, Tax-News.com, Washington

08 September 2011


South Korea’s Ministry of Strategy and Finance has unveiled its tax revision bill, which will form the basis of the government’s policies and budget for the next year, but, at the same time, has had to renounce a planned reduction in income and corporate taxes.

The Ministry has disclosed that the various tax policies, that are to be sent to parliament for approval, include expanded tax incentives to companies with the aim of creating more jobs in the economy, but also that it has definitely dropped its long-standing plan to reduce corporate and individual income tax from next year.

It had been agreed in December 2009, when the tax cuts were delayed for a further two years, that the government expected, from 2012, to lower the rate of income tax on individuals earning more than KRW88m (USD82,100) from 35% to 33%, while the corporate tax on businesses with a taxable income greater than KRW200m would be cut from the current 22% to 20%.

The government had previously said that lower taxes were needed, both on comparative international grounds and to promote growth, investment and jobs in the economy. On the other hand, opposition parties, and some within the ruling Grand National Party, had attacked the tax cutting policy as providing support to the country’s wealthiest sectors, and that the government could better use the funds it would lose in reduced taxes by improving welfare policies.

The government will now look to provide support for job-creating businesses by cancelling the current investment tax credit system, and replacing it with a new tax credit based on the number of posts created by a company. In addition, young adults working in small- and medium-sized enterprises (SMEs) will be exempted from income tax for the first three years of work, while SMEs recruiting young adults will have a tax deduction for social security costs, including pension plans.

To support low and middle income families, there will be an expansion of the earned income tax credit, along with renewed government efforts to stabilize prices including housing costs. Income tax deductions for credit card charges will be increased, and there will be further tax deductions for cheque card spending to ease the burden of credit card fees charged on small businesses.

There will also be expanded research and development tax deductions for the service sector, and, to support the growth of a low-carbon economy, the government will exempt electric buses used for public transportation from value added tax, while electric cars will also be temporarily tax-exempt.

Finally, the government intends to broaden the country’s tax base by focusing on tax compliance, by both individuals and corporates. It will introduce taxes on stakeholders in associated companies that obtain abnormal profits from contracts handed down within a group, and will lower the threshold for publicizing the names of those with unpaid tax debts.

TAGS: individuals | compliance | tax | small business | economics | business | value added tax (VAT) | tax compliance | tax incentives | budget | corporation tax | tax credits | small and medium-sized enterprises (SME) | tax rates | Korea, South | individual income tax | research and development

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