[EDITORIALS]Tax cut just what is neededDeputy Prime Minister Kim Jin-pyo, who is also minister of finance and economy, said yesterday that Korea’s corporate tax rate must be lowered to match rates in competing Asian countries. We believe that the economic chief has made a correct and timely decision, considering that local firms are reluctant to make investments and the economy is sagging. The planned tax cut is expected to alleviate foreign investors’ anxiety about the new administration’s economic policy.
Korea has a corporate tax rate of 27 percent. Although the government says that the real tax rate is lower than that because of a variety of tax deductions and exemptions, the rate is well above Hong Kong’s 16 percent and Singapore’s 22 percent. Such a high rate puts Korean companies at a disadvantage in competition with their foreign rivals.
It is uncertain whether a tax cut will immediately boost the economy. But one certainly will stimulate corporate investment in the short term. In the long run, lower corporate taxes will help enhance Korea’s economic competitive edge by preventing an outflow of local capital and attracting foreign money to the country. The first thing the United States did to boost its slumping economy was cut corporate taxes. Other economies are following suit for the same reason.
The Korean government said it would lay out a detailed tax cut plan, depending on the level of its tax revenue. Given that a 1 percentage point cut of the corporate tax rate would take about 1 trillion won ($838.2 million) out the government’s coffers, it will be difficult to lower the rate to the levels of Southeast Asian competitors in a short period of time. Past administrations balked at tax cuts because of concerns about shifting the tax burden to salaried workers and draining funds from government projects. But such concerns could be dealt with if the government broadens tax sources and lowers tax rates. In addition, a corporate tax cut would boost the economy and thus taxes collected.
A corporate tax cut could be the first step toward a business-friendly environment. Politicians should pursue a non-partisan agenda and make a reasonable decision.