More harm than good

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More harm than good

The previous government created a tax to prevent large conglomerates from keeping projects within the family of corporate affiliates. The anti-chaebol tax is aimed at stopping CEOs and their family members from embezzling company profits or dodging taxes.

But the new measure turned out to hurt small and mid-sized firms more than large ones, because it didn’t have specific regulations on corporate scale and revenue. The Korea Federation of Small and Medium Business last weekend submitted a petition asking the government to exempt small and mid-sized companies from the new levy.

The problem had been predicted, but no one paid attention. Despite worries that the law could deal a heavy blow to small and mid-sized enterprises with double taxation, the National Assembly passed the law in 2011. The new Park Geun-hye government was equally uninterested. In April, the head of the small and medium business group recommended that smaller companies be exempt from the tax during a meeting with the tax administration chief, but was ignored again. It’s no wonder that small and mid-sized companies resent both the government and the legislature, as their troubles could have been avoided if just one exemption clause had been put into the act.

Another law aimed at helping small and mid-sized companies when they bid for government projects also proved to be half-baked. The new law was enacted to give small businesses with less than 50 employees priority in government tenders under 100 million won ($89,166). However, most small companies were disqualified and companies with more than 50 employees were stripped of a chance at bidding. If the government had been serious in helping out small companies, it should have paid attention to details like the qualification criteria or the 50-employee cap on corporate scale.

Many of the bills pending in the National Assembly that are aimed at providing economic justice can also be damaging to small and mid-sized enterprises, such as punitive damages to protect subcontractors and franchise businesses. Construction industry insiders say the regulation could make large companies refrain from giving out construction orders to subcontractors. The franchise industry protests that the law could reduce sales outlets for fear of lawsuits. The goal of economic democratization is to offer justice and fairness to smaller companies. But if laws are loosely and hastily designed, they could do more harm than good. If they are proven to be ill-made, the government and legislators should fix them to lessen the damage.
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