The only country that raises corporate taxThe government announced a plan to increase the corporate tax rate from up to 22 percent to up to 25 percent. The 3 percent increase is the most significant in any administration. Civil group People’s Solidarity for Participatory Democracy argues that the corporate tax rate could be raised up to 27 percent. They view the large corporations as the wealthy, and it is considered a tax hike for the rich.
Generally, a tax increase takes three things into consideration. The size of financial resources that can be secured, distribution of tax burden and the distortion of resources distribution from taxing are analyzed. However, as the global economy open up, all countries select policies only based on efficiency when deciding corporate tax policy. As the corporate tax affects economic growth, it is generally the only point considered.
Companies play key roles in the market economy. Companies earn income, create jobs and pay tax. Without companies, there is no market economy. Countries often offer lower corporate tax than others to enhance competitiveness of their corporate giants. The United States, the United Kingdom, France and Japan consider corporate tax cut. However, the Korean government is considering raising the corporate tax.
Korean economy is a small open economy, and we should be sensitive to the trends of competitors. The corporate tax rates in Japan and the United States are higher than Korea’s.
They are the powers leading the global economy, so the high corporate taxes could be viable. However, lower corporate tax could help a small open economy. Hong Kong and Singapore offer low corporate tax burdens. Korea’s corporate tax rate is on a moderate level among the OECD members, but considering the size of the economy, it could get lower.
When the corporate tax rate is high, large corporations would invest less, employment could be reduced and national income may decrease. In the long run, corporate tax hikes could undermine companies’ capacity to pay taxes. Many countries are considering corporate tax cut for the future of the nation.
Also, it is misleading that the large corporations are considered as a part of the wealthy. It is an outdated mindset to put more tax burden on corporations for the welfare of the people rather than lowering the corporate tax to help large businesses do better in the global market.
*Former head of the Center for Free Enterprise