Korea expands tax breaks to spur jobs

The South Korean government will expand through a legal revision its policy to provide more tax breaks for corporate research and development costs and employment as a means to develop the country’s next growth engines and boost job creation.

The Finance Ministry announced Thursday it would have the high-income group and conglomerates pay more taxes while easing the tax burden on the low- and middle-income brackets and small businesses.

“This is in line with efforts to run a reasonable and fair taxation system by also having companies increase their income distribution among employees more than dividends,” a Finance Ministry official said.

Korea will be able to see the effect of its tax breaks, to be valued at over 317 billion won ($282 million) annually, the ministry added.

With the key focus on generating future value and increasing employment, Korea recently selected 11 sectors as its next growth encgines, including artificial intelligence, content development, health care and robotics.

The tax revision will allow up to a 30 percent deductible rate for small and medium-size enterprises on R&D for one of the 11 next-generation fields. Conglomerates, on the other hand, can deduct up to 20 percent on R&D spending.

“Should companies increase their R&D spending in proportion to annual sales, they will enjoy more tax cuts, especially in the development of new drugs (in health care),” the Finance Ministry said in a press statement.

The government will further offer tax deductions of up to 10 percent for small businesses and 7 percent for conglomerates when they increase facility investments for technology commercialization.

In services, small production companies will be able to deduct up to 10 percent on production costs of movies, TV dramas and other content in line with efforts to create 250,000 jobs through such fiscal measures aimed at increasing productivity.

More than 360 companies ranging from ski resorts and computer repair shops to coffeehouses and beauty parlors in the services industry will be able to see the benefits of tax cuts. Korea seeks to develop the services industry especially in the fields of tourism, content production, education, finance, software and logistics and transportation to narrow the productivity gap between services and manufacturing.

The government aims to lift the value of its services sector on par with the average of the Organization for Economic Cooperation and Development within five years.

Korea seeks to increase employment in services to account for 73 percent of the total, currently from 70 percent. It will also seek to boost the services industry’s value to account for about 65 percent of total gross value added, from 60 percent. Employment in the services sector accounts for over 72 percent in the OECD, as well as 71.3 percent of value added in the OECD.

This is also in line with efforts to boost Korean exports from services to $150 billion.

The Finance Ministry will submit its tax revision proposal for legislative approval by September.

By Park Hyong-ki (hkp@heraldcorp.com)