Wealthy, big business will pay more in taxesKorea’s wealthiest people and biggest companies will pay more in taxes and the government will cut back on tax breaks for businesses, including those given for new investments and research and development.
A higher capital-gains tax will also be charged to major stakeholders in companies when they sell shares.
The government estimated that 93,000 wealthy individuals will be affected by the higher tax rates, and the biggest brunt will be felt by 20,000, 0.1 percent of the nation’s company employees.
Creating jobs and improving wealth distribution were the primary goals of the Moon Jae-in government’s tax reforms released by the Ministry of Strategy and Finance on Wednesday.
“Although the wage gap between people that work at small and medium-sized enterprises and [leading] conglomerates, as well as salaried employees versus those on contract, has been widening, wealth distribution through taxation and government spending are at low levels,” Finance Minister and Deputy Prime Minister for the Economy Kim Dong-yeon said. “The tax reform bill focuses on creating jobs and improving wealth distribution.”
The government estimates the changes will bring it an additional 5.5 trillion won ($4.89 billion) in revenues.
It hopes to pull in 2.57 trillion won from the nation’s wealthy, including those paying the higher capital-gains tax. It hopes to pull in 1 trillion won alone from the tax rate adjustment on the top earners.
It expects at least 3.7 trillion won in new revenue from the higher corporate tax rates and the ending of tax breaks for companies. It expects an additional 2.55 trillion won from the higher corporate tax rates.
On the flip side, the government expects to net lose 820 billion won from some changes including increasing spending on welfare and funding SMEs to help create jobs.
On income taxes, individuals who make between 300 million won and 500 million won annually will be charged 40 percent income tax. Those that make more than 500 million won will be slapped with a 42 percent tax rate.
In the existing tax code, a 38 percent tax was applied to those that made between 150 million won and 500 million won and a 40 percent tax rate on those that made more than 500 million won.
Under the new bill, people who make between 150 million won and 300 million won will continue to be taxed at a 38 percent rate.
The maximum corporate tax rate has been raised from 22 percent to 25 percent.
But as with income taxes, the government altered the tax brackets for the top business groups.
Previously companies with net income of more than 20 billion won a year paid 22 percent in corporate tax and those that made 200 million won to 20 billion faced a 20 percent rate.
Under the new bill, the 25 percent maximum corporate tax will be applied to companies that earn more than 200 billion won a year. Companies that make 20 billion won to 200 billion won will be taxed at 22 percent while those that make 200 million won to 20 billion won will continue to pay 20 percent.
The government also raised taxes on large shareholders selling shares. Previously the capital-gains tax was 20 percent for all investors.
Under the new bill, the 20 percent rate will only apply to share sales that are valued at up to 300 million won. Transactions exceeding 300 million won face a 25 percent capital gains tax.
The reforms also roll back tax breaks offered companies.
Tax refunds on investing in facilities like factories have been cut 2 percentage points from 3 percent to 1 percent. R&D tax refunds saw a milder cutback from a maximum 3 percent to 2 percent.
The government is toughening taxation on companies that commission work exclusively to affiliates or companies run by family members.
Profits made from such business deals when exceeding a government standard will be considered a “gift tax.”
Previously, such gift taxes were applied when the commissioned work exceeded 30 percent of all work commissioned by the main company. That ratio has been lowered to 20 percent. In addition a new condition has been added that such transactions can’t exceed more than 100 billion won.
The bill boosts benefits for companies that contribute to creating jobs or raising the incomes of their employees. It also gives some tax breaks to lower and middle-income households.
One of the biggest changes is offering tax breaks to companies that hire employees but don’t make new investments.
Previously they had to do both to get a 3 to 8 percent tax refund on job-related investments. Under the new bill, the company only needs to increase the number of new recruits. SMEs will get a tax refund of between 7 million won and 10 million won per new hire.
For medium size companies, that figure rises to 5 million won and 7 million won. For conglomerates, it’s 300 million won per employee.
SMEs that upgrade contract employees to full staff will get a tax refund of 10 million won, up from 7 million won under the existing tax code.
The government plans to double a tax refund from 10 percent to 20 percent when companies give raises to employees.
Foreign companies will get a 100 percent income tax exemption for five years and a 50 percent cut for two years on corporate tax.
There are also tax benefits for individuals.
The 70 percent income tax cuts given to people working at SMEs will be extended from three years after they first got their jobs to five years.
Additionally, the government has raised subsidies for low-income households.
In order to be eligible for a labor encouragement payment, an applicant needs to be 50 years old or older and have assets less than 140 million won.
The applicant’s children must be 18 years old or younger. For those without a family, the annual income has to be 13 million won.
In the case of a single-person household, annual income needs to be less than 21 million won.
For two-person households, income needs to be less than 25 million won.
The government plans to raise the monthly payment for single people from 770,000 won to 850,000 won; for single-earner families from 1.85 million won to 2 million won; and for double-income families from 2.3 million won to 2.5 million won.
The new tax bill is expected to be put to a vote at a cabinet meeting by the end of this month and then delivered to the National Assembly in September.
BY LEE HO-JEONG [firstname.lastname@example.org]