Additional Corporate Tax: Samsung Electronics to Pay Additional 400 Billion Won for Corporate Tax Next Year | BusinessKorea

Friday, December 15, 2017

South Korea’s top 10 companies in terms of the amount of corporate tax payment are estimated to pay an additional 1.3 trillion won (US$1.19 billion) from next year.
South Korea’s top 10 companies in terms of the amount of corporate tax payment are estimated to pay an additional 1.3 trillion won (US$1.19 billion) from next year.
Seoul, Korea
7 December 2017 - 11:00am
Jung Suk-yee

As the new law passed to raise the top marginal corporate income tax rate by 3 percent from 22 percent to 25 percent at the National Assembly plenary session on December 5, South Korea’s top 10 companies in terms of the amount of corporate tax payment are estimated to pay an additional 1.3 trillion won (US$1.19 billion) from next year.

Based on the data of companies’ financial statements and credit rating service provider NICE Information Service Co. from the “Economy and Finance Note in 2017” report in March, the National Assembly Budget Office (NABO) estimated the corporate taxes paid by top 10 companies in 2015 at 10.58 trillion won (US$9.67 billion). When the top rate of corporate taxes is increased to 25 percent, corporate taxes paid by top 10 businesses will grow to 1.34 trillion won (US$1.22 billion) in total. The figure has come up with the increase in top tax rates after simply estimating the tax base according to companies’ estimated corporate taxes paid without various tax deductions and reductions such as research and development (R&D) tax credit and foreign tax payment credit.

Samsung Electronics Co. will face the biggest increase in tax burden. The company is estimated to pay a total of 3.22 trillion won (US$2.94 billion) of corporate taxes in 2015 and will see its corporate tax hike 425.3 billion won (US$388.93 million) when the top tax rate rises 3 percent points. Hyundai Motor Co. will also pay 180.3 billion won (US$164.88 million) more for income taxes, Korea Electric Power Corp. (KEPCO) 156.5 billion won (US$143.12 million), SK Hynix 123.4 billion won (US$112.83 million) and Korea Hydro & Nuclear Power Co. (KHNP) 112.5 billion won (US$102.88 million).

In addition, considering the fact that the rate of tax deductions on investment in R&D and various facilities will be lowered from next year, the actual tax burden of the nation’s highest-earning companies can grow bigger. The government expects that the corporate tax hike for large businesses will increase its tax revenues by 2.3 trillion won (US$2.1 billion) from 77 companies per year.

Experts have mixed opinions of the economic aftereffect of the increase in corporate income tax. Kim Hak-soo, researcher at the Korea Institute of Public Finance (KIPF), said that the real gross domestic product (GDP) will eventually drop 0.3 percent as the investment, or gross fixed capital formation, and the employment, or the number of employees, will fall 0.7 percent and 0.2 percent, respectively, when the top rate for corporate taxes of 129 companies whose taxable income exceeds 200 billion won (US$182.9 million) increases. On the other hand, Park Ki-baek, professor of University of Seoul, said, “Only 70 companies will face the corporate tax hike. So, it will have little effect on the economy as they have good management conditions.”

Some express concerns that the tax increase can accelerate companies escaping from South Korea as raising corporate taxes runs counter to the global trend. Recently, the new tax reform bill to slash the top rate of corporate taxes to 20 percent from 35 percent from 2019 was passed by the Senate in the U.S. Japan is also set to lower the top tax rate from 29.97 percent to 20 percent.

Accordingly, voices urging the government to improve the business environment is growing as the reverse side of the rise in corporate taxes. Oh Moon-sung, professor of Hanyang Women's University, said, “It needs to reduce the burden of quasi-taxes including various legal burden charges, donations and contributions.” An official from a national research institute said, “It needs to minimize the negative effects from the corporate tax hike through a policy supporting an innovative growth like the rationalization of regulation and technology development supports.

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