Dampening the spirit of business

A fund designed to compensate the farming and fishing industries for potential losses from the inflow of cheap Chinese products following the ratification of a free trade agreement (FTA) with China has raised controversy for placing a mandatory obligation on the corporate sector. The government reportedly asked a group of 42 economic organizations and research institutes to agree to the creation of a cooperation fund worth 1 trillion won ($858 million) through voluntary annual contributions of 100 trillion won over the next 10 years to support farmers and fishermen.

But the agreement was hastily arranged before the National Assembly’s vote on the FTA in order to persuade the main opposition New Politics Alliance for Democracy to ratify the deal. The corporate groups’ statement pledging contributions to the local farming and fishing industries came only after the government pushed for it. The corporate industry also worries that it could be forced to make even more social contributions when the country joins multilateral or regional liberalization frameworks like the Trans-Pacific Partnership.

The government insists the funding is “voluntary” and not compulsory for companies. It claims large manufacturers could afford to pay 100 billion won annually from the benefit of increased exports to China. But companies know what “voluntary” suggests. The government demonstrated its administrative muscle when it issued five-year business licenses for duty-free shops in the capital - the government showed that it could save or close a business if it wishes.

The annual contributions to the new fund will therefore be another form of taxation on companies, regardless of whatever benefits the FTA with China will bring. The corporate sector has been weighed down by various levies under President Park Geun-hye’s government. About 10 large companies have contributed 100 billion won to help the government create a fund for unemployed young people, and the innovation fund to support regional start-ups was also created through funding from regional companies. Even the 2018 Pyeongchang Olympics Committee has been demanding funding from large companies.

This funding is improper and illegal. The government should create a budget for any state project. If the budget falls short, it must raise legitimate taxes. The government cannot raise taxes because the president promised not to hike taxes during her term. So the government and ruling party instead have resorted to strong-arming public enterprises to draw “voluntary” contributions from companies. The opposition party is happy to go along with the plan, so long as it doesn’t affect general voters.

But all these extra duties are dampening business sentiment. According to the business sector, various binding and non-binding contributions that companies had to pay last year reached 58.6 trillion won, far more than the corporate tax revenue of 42.6 trillion won and research and development investment worth 43.6 trillion won. The rise in annual contributions has even outpaced corporate sales growth. And the amount will only increase as companies are also pressured to contribute in the government’s campaign to reduce carbon emissions and boost employment. All this is just making the country a more unjust and unreasonable place to do business.

JoongAng Ilbo, Dec. 3, Page 34