Additional tax to be collected by corporate tax revision

"Policy No. 1 to increase tax revenue" sought by the Park Geun-hye administration to expand welfare spending has been unveiled. The centerpiece of the policy is to annually collect some 200 billion won (183 million U.S. dollars) from conglomerates in additional corporate tax from 2015 by revising the system, which offers lower tax rates for large companies making investments.

According to the Strategy and Finance Ministry on Friday, it will lower by one percentage point the basic deduction rate for employment-related investment by conglomerates after revising the Special Tax Treatment Control Act. The measure has been devised as a result of the ruling and opposition parties’ recent agreement to reduce tax benefits of conglomerates in order to prevent the deterioration of the fiscal soundness, which could happen due to extra budget allocation. The political parties have agreed to deliberate on the revision bill at the extraordinary session of the National Assembly in June.

If related laws are revised, the government will reduce the basic tax deduction rate for employment-related by large companies with annual sales exceeding 300 billion won (274 million dollars) by one percentage point from 2 percent to 1 percent in the Seoul metropolitan region, and from 3 percent to 2 percent elsewhere. The basic deduction rate of 4% for small and medium-sized companies will remain unchanged, however. Tax deduction for job creation-related investments is a system that is designed to reduce corporate tax on investment involved in employment. The measure was introduced last year to replace "temporary investment deduction act,” which had been applied for companies making facilities-based investments in the past.

If the revision bill passes the National Assembly in June, 91,603 large companies will be affected from Jan. 1 next year. The government forecasts some 200 billion won (183 million dollars) in additional tax will be collected every year from 2015 when conglomerates are supposed to pay corporate tax for next year.

buddy@donga.com