Pump-priming Measures to Maintained

The government is likely to maintain the current policy, promoting business in the second half of this year. It is positively considering maintaining the investment tax exemption, which was planned to temporarily operate till June, and extending the deadline of excise tax cuts on cars.

Jeon Yun-churl, Deputy Prime Minister and Minister of Finance and Economy, said at the press meeting on the 16th, “We will keep the investment tax exemption till the end of this year, as the recovery of business is not certain in the second half, and corporative investment is not revived yet.”

The Ministry of Finance and Economy (MOFE) allegedly briefed the President on its decision on the above immediately after the Bank of Korea raised the overnight call rate by 0.25 percentage points, through the Financial Currency Committee on the 7th of this month. Deputy Prime Minister Jeon said that he would decide whether to maintain the special excise tax cutss on cars, golf goods, PDP TV, and so on till the end of this year after reviewing indicators of business in April.

Kwon Oh-Kyu, Assistant Secretary of MOFE, implied the extension of the current basis of policy, “stimulating economy – no regulations on overheated business” by adding, `”recent business indicators like the quantity of electricity consumed and the sales of retail and wholesale are showing slowed growth rates of industries in April.”

Temporary tax breaks for investment, which the government had often introduced to promote investment, was scheduled to expire at the end of June after being extended three times since January of last year. The tax cut is a special favor that the government deduces 10 percent of the amount invested on the facility from corporate tax or income tax for the companies that belong to the 25 categories of business including the industries of manufacturing, retail, wholesale, and construction.

The amount subtracted from taxes last year was calculated at 701.6 billion won. Special excise tax cuts have been predicted to last, as the United States Trade Representative (USTR) officially requested the Ministry of Commerce, Industries, and Economy to extent the deadline of tax breaks, and the domestic vehicle industry also has similar opinions. Experts say the government keeps the measures stimulating business because the facility investment and industrial production in the first quarter (January to March) increased only 2.0 percent and 3.9 percent each, and export decreased from last year.

Rae-Jeong Park Joong-Hyun Park ecopark@donga.com sanjuck@donga.com