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Aggressive Corporate Tax Cuts Planned

Posted March. 11, 2008 03:05,   


A number of aggressive tax cuts and business deregulation are slated for this year under a government plan.

The Strategy and Finance Ministry yesterday presented its first report on this year’s economic policies to President Lee Myung-bak at the government complex in the southern Seoul suburb of Gwacheon.

The ministry presented measures to achieve economic growth of six percent as pledged by the president.

The corporate tax rate will fall from 25 percent for companies whose tax base exceeds 100 million won to 22 percent by next year and further to 20 percent by 2013. The government will also raise their tax base limit to 200 million won.

A firm with a tax base of less than 100 million won will see their corporate tax cut from 13 percent to 11 percent by next year and to 10 percent by 2013. To boost smaller firms, their tax base limit will be raised to 200 million won.

The lower corporate tax rate, which corporations must pay even when they are tax exempt, will be lowered from 10 percent to eight percent.

Additional cuts will come after the government sees developments in its financial status and competitors. Tax revenue is estimated to fall 8.6 trillion won over the next five years due to the tax cuts.

To boost corporate investment, the tax credit for research and development facility investment will rise from seven percent to 10 percent. Service firms and manufacturers will also get tax breaks through law revisions by June this year.

As part of regulatory reform, the government will scrap limits on cross-shareholding for a firm whose assets exceed two trillion won and belongs to a business group worth more than 10 trillion won by June.

Also set for lifting are the five-percent ownership limit on non-affiliate shares by holding companies and the debt ratio limit of 200 percent.

To nurture the service industry, entry regulations for the medical and legal sectors will be eased. The government will also consider establishing for-profit hospitals to keep patients from going overseas for treatment and diversify medical services via private health insurance.

Moreover, more support will go toward the high-risk, high-return investment market by easing regulations on private equity funds and introducing hedge funds. The government also plans to reduce the approval process and period for a firm to enter the domestic financial sector.

R&D investment will rise from 3.2 percent of gross domestic product in 2006 to the five-percent level by 2012 to develop future growth engines.

higgledy@donga.com legman@donga.com