Corporate tax increase only 0.1% for major firms

Corporate taxes on Korea’s top conglomerates rose a mere 0.1 percent over the past five years, while their sales rose 50 percent in total, a report based on government data showed.

According to a press release by Rep. Park Won-suk from the opposition Justice Party, the 1,764 subsidiaries of about 60 conglomerates - whose gross assets surpass 5 trillion won ($4 billion) each - recorded a 569.6 trillion won increase in sales to 1,689 trillion won total between 2009 and 2014, a 50.9 percent jump. Profits of the companies also surged 29.3 percent during the period.

However, the total amount of all taxes they paid over the past five years, including corporate tax, rose only 7.1 percent, or 1.2 trillion won, to 14.18 trillion won as of 2014.

Corporate taxes inched up only 0.1 percent, or 18.7 billion won, during the period.

A primary reason for low corporate taxes was the eased taxation rule under the business-friendly Lee Myung-bak administration in 2008, when the maximum corporate tax rate was cut to 22 percent from 25 percent.

Due to the eased rule, the total corporate tax exemption on conglomerates also reached 125 million won.

The effective tax rates, which exclude several tax benefits offered by the government, also fell to 16.17 percent in 2014 from 19.84 percent in 2009. The 3.67 percent drop was higher than the 2.8 percent decrease at small and medium-sized enterprises.

As of 2014, sales of the 1,764 conglomerate subsidiaries account for nearly 40 percent of the total sales of Korea’s entire enterprises, the report said.

But they enjoy more tax exemptions than other companies, accounting for 57 percent, or 4.98 trillion won, of a total 8.7 trillion won in tax exemptions for all companies.

The lawmaker said as much as revenue and profit have increased, the big companies’ tax burden should have equally increased.

“Under the current taxation system, the chaebols, who are making the most money in the country, are enjoying the biggest tax benefits,” Park said in the press release. “For taxation equality among all the companies in the country, the government and the ruling party should abandon their stubborn attitude to ‘never touch the corporate tax.’”

Defying the demand from opposition lawmakers to raise the corporate tax amid rising fiscal deficits, Minister of Strategy and Finance Choi Kyung-hwan recently reaffirmed that the government has no plans for a hike in the corporate tax.

At a hearing in the National Assembly on Aug. 27, Choi said, “It was not the right timing for an increase in the corporate tax. While economic growth is still tepid, a rise in the corporate tax means throwing cold water to the economy.”

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]