Lawmakers feud over corporate tax increase

The growth in corporate tax rates took center stage at the National Assembly’s government audit Wednesday, putting ruling and opposition party lawmakers at loggerheads.

Representatives from the opposition parties proposed raising corporate taxes in order to collect more revenue and keep up with the hike of other taxes such as income tax.

Rep. Kim Hyun-mee of the main opposition Minjoo Party of Korea said the rate should be raised because corporate taxes have been reduced over the past years.

Revenue from corporate taxes has fallen 2 percent over the past three years from 45.9 trillion won ($40.85 billion) to 45 trillion won, while revenue from income tax grew 38.3 percent to 27.1 trillion won. The lawmaker said that income tax revenue rose by 2 trillion won every year on average.

“In 2011, corporate tax accounted for 23.3 percent of the entire tax revenue, but the share sharply decreased to 20.7 percent last year, lower than the proportion of income tax at 27.9 percent,” the opposition lawmaker said.

Kim noted that eased tax rules introduced under the business-friendly Lee Myung-bak administration contributed to the reduced revenue.

The effective tax rate on corporations was 21.8 percent in 2008, but it went down to 17.7 percent last year.

Finance Minister Yoo Il-ho, however, said the rate hike would be inappropriate due to the country’s slow economy and unfavorable economic conditions in the global market.

“We need to keep in mind that [the corporate tax hike] will translate into a burden for workers and drag down investment,” the minister said during the audit. “There are voices saying a higher rate should be applied to big corporations, but the effective tax rate has already gone up for conglomerates.”

Choo Kyung-ho of the ruling Saenuri Party defended the current system, saying Korea’s proportion of corporate tax revenue is higher than other countries.

“Despite the cut in corporate taxes, the percentage of tax revenue as a percentage of GDP remains below the average of OECD countries at 2.9 percent,” the lawmaker said.

Choo added that Korea’s rate takes up 3.4 percent of GDP. “The country’s businesses don’t pay a particularly low corporate tax rate, and as their profits and sales went down, talks of a tax increase are inappropriate.”

But opposition party members countered that companies are reluctant to make investments or hire more people even though they enjoy what opposition party members consider relatively low taxes.

“They have received tax benefits through corporate tax cuts,” said Lee Un-ju of the Minjoo Party, “but they didn’t create more jobs. They just stacked up cash reserves.”

Members of the ruling party suggested other measures to boost government coffers such as reducing expenses and scaling down tax exemptions.

During the audit, the country’s largest lobbying group, the Federation of Korean Industries, also came under fire on allegations that it pressed member companies to contribute to two foundations allegedly connected to the Park Geun-hye administration.

In the wake of the controversy, some opposition party members went as far as demanding the dismantling of the federation. Lee Seung-cheol, vice chairman of the lobby group, attended the audit but declined to answer, saying the investigation was ongoing.

During the audit, Finance Minister Yoo also discussed the ongoing restructuring process of the troubled Daewoo Shipbuilding & Marine Engineering, and confirmed there would be no additional funds aimed at helping increase the company’s liquidity.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]