The proposal by the main opposition party to raise corporate tax rates should be withdrawn, as it goes against the global trend of giving incentives for businesses to invest more and create more jobs.
The draft tax revision announced by the Democratic United Party on Monday calls for, among other things, raising corporate tax rates to 22 percent for companies with annual taxable profits of between 200 million won ($177,200) and 50 billon won, and to 25 percent for firms with profits of more than 50 billion won.
Under the current rules, corporations earning 200 million won to 20 billion won are subject to a 20 percent rate while a 22 percent rate is applied to those with earnings of more than 20 billion won. The DUP plans to leave the rate for companies with profits of less than 200 million won unchanged at 10 percent.
A debate is expected to heat up between the DUP and the ruling Saenuri Party, which wants to keep the current corporate tax scheme, in the process of reviewing the tax bill put forward by the government on Wednesday.
The opposition party expects the measure to boost corporate tax revenue by 3 trillion won a year, which it says could be used to bolster welfare programs for the less privileged.
But DUP lawmakers should think about why almost all major economies have reduced corporate tax rates while seeking to increase revenues through all other means to reduce budget deficits that have ballooned in the course of coping with the 2008 global financial crisis.
To endure the global economic downturn, it is needed more urgently than ever to encourage businesses to spend more and create more jobs. Despite their acerbic attacks against each other in the U.S. presidential race, both President Barack Obama and his Republican rival contender Mitt Romney favor reducing the corporate tax rate.
While Korea has frozen corporate tax rates since 2009, the rates have been cut by 2.6 percent on average in Asian nations, 3.5 percent in North America and 1.1 percent in European states over the cited period, according to figures from the National Tax Service.
Korea’s corporate tax revenue accounted for 3.5 percent of its gross domestic product in 2010, compared with an average 2.9 percent of the 34-member Organization for Economic Cooperation and Development.
The DUP needs to realize that raising corporate tax rates amid mounting concerns over a prolonged global economic slowdown would eventually weaken companies’ international competitiveness and lead them to move production abroad. It would also hamper efforts to attract foreign investment here. Such results would do nothing to help ease the deepening polarization of society, which the party has cited as a main reason for tax rate hikes.
