Bank of Korea’s discussions on tax reduction are non-existent

The German government announced a tax reduction package to reduce taxes by seven billion euros per year, which is equivalent to 10.6 trillion won. The parties participating in the coalition government made an agreement to reduce corporate taxes as the country has been recording negative growth rates. Prior to this, the Labour Party of the U.K., which is the country’s leading opposition party, announced a growth-first policy stance by saying that they wouldn’t raise the maximum tax rate for income taxes and transfer income taxes. Advanced countries with sluggish economies are changing their policy directions to reduce taxes or oppose tax increases to boost their economies.

The key part of the “Growth Opportunities Act” agreed by the German coalition government is to reduce corporate taxes for small- and medium-sized companies by seven billion euros per year for four years. Germany is the only advanced country that is expected to record a negative growth rate this year as it was heavily impacted by the recession in China, Germany’s biggest trading partner. The coalition government led by the left-wing Social Democratic Party decided to lower taxes in order to address the current challenges. The maximum corporate tax rate, including local taxes, is 29.9 percent in Germany, which is among the highest in Europe.

The Labour Party of the U.K. agreed with the progressive camp not to create a new tax on the wealthy. The party also promised not to raise the maximum tax rate of 45 percent imposed on high-income earners. It changed its previous stance to address the concerns that the Labour Party, which has been calling for a tax increase, will worsen the current economic slowdown with a growth rate under one percent. “I don't see the way to prosperity as being through taxation,” said Chancellor of the Exchequer Rachel Reeves of the Labour Party. Prime Minister Rishi Sunak of the ruling conservative party is considering the abolishment of inheritance taxes to boost investment and consumption.

While advanced countries are competing with each other to reduce taxes for companies and individuals, there are no such discussions in South Korea. Due to a lack of tax revenue, the country’s ruling party was unable to propose aggressive tax reduction plans, such as revamping corporate taxes and inheritance taxes in next year’s budget plan and tax revision plan. The opposition Democratic Party of Korea is blaming the current administration’s policy to reduce taxes for the super-rich for the lack of tax revenue and is calling for collecting more taxes.

South Korea’s maximum corporate tax rate, including local taxes, is 26.4 percent, higher than the OECD average of 23.1 percent. The corporate tax rate is the biggest consideration for global companies leaving China for a new location. In addition, South Korea’s inheritance tax rate, including extra charges for the largest shareholder, is 60 percent, which is higher than most countries in the world. Advanced countries are choosing tax reduction despite fiscal pressure as it is a shortcut to investment expansion, consumer sentiment recovery, and investment for the future. South Korea should not fall behind in such a competition.