By Kim Hyun-bin
The Moon Jae-in administration increased the corporate income tax rate during its five-year term (2017 to 2022), while five other advanced countries maintained or lowered tax rates during the same period, making it harder for Korea companies to compete with global rivals, a report showed Thursday.
According to the Korea Economic Research Institute (KERI), affiliated with the Federation of Korean Industries (FKI), the Moon government raised the corporate tax rate from 22 percent to 25 percent in 2018, putting a heavier tax burden on local firms. But France lowered its tax rates from 44.4 percent to 28.4 percent, the United States from 35.0 percent to 21.0 percent and Japan from 23.4 percent to 23.2 percent. The UK kept its tax rate at 19.0 percent and Germany at 15.8 percent.
Korea was also the only country from 2017 to 2022 to hike income tax rates, putting a heavier financial burden on salaried workers and the self-employed. The top income tax bracket in Korea was raised by 5.0 percentage points from 40.0 percent in 2017 to 45.0 percent in 2021.
The G5 countries maintained or eased their income tax base. The U.S. has cut its income tax from 39.6 percent to 37.0 percent over the past five years. The other four countries Japan, Germany, UK and France showed no change to their 45.0 percent rate.
KERI pointed out that, due to the problems with the current tax system in Korea, the tax burden is increasing faster than that of G5 countries, which may weaken the vitality of the private sector.
Considering the medium to long-term risks of the Korean economy, such as chronic low growth and a surge in national debt, KERI suggested that it is necessary to reduce the tax rate. This is because, by lowering the tax rate, it is possible to promote private economic activities more.
"In the past five years, the strengthening of corporate and individual income taxation, which goes against the global trend, has had the side effect of hindering corporate investment motivation. As the financial burden increased in the private sector, the new government needs to ease the tax burden," an FKI official said.