The Ministry of Strategy and Finance said, “Economic vitality, such as increased investment and employment, is expected to be improved by improving the corporate tax bracket and tax rate system.”
[기사 내용]
ㅇ It was reported that 7 out of 10 large corporations did not increase investment or employment or show doubts even if corporate tax was cut in accordance with the government’s tax reform plan.
[기재부 입장]
i. If the survey question asked for the company’s intention to invest in the ‘medium to long term’ rather than ‘the next year’, a more positive answer would be expected.
□ Corporate investment is a matter of making medium to long term decisions, and the economic impact of corporate tax cuts will also appear in the medium to long term.
□ The survey question asks for the company’s investment plan for ‘next year’, but there is a high level of ‘I don’t know’* response due to great uncertainty such as worries about an economic recession.
* (willing to increase from this year) 33.0%, (not sure) 47.0%, (not willing to increase from this year) 20.0%
ㅇ In the survey question, a more positive answer is expected if the company’s intention to plan a ‘medium to long-term’ investment plan is asked.
II. As a result of the survey, 71.3% of the respondents answered that ‘the investment and employment environment of companies needs to be improved’ as the reason for favoring a reduction in the top corporate tax rate.
□ 67.6% of all respondents are in favor of the plan to reduce the top corporate tax rate (25% →22%).
□ Among the reasons in favor of lowering the maximum corporate tax rate, the highest response with 71.3% was ‘the environment for corporate investment and employment needs to be improved amid intensifying international tax competition’.
ㅇ Next, 38.3% of respondents answered ‘necessary to revive the economy by stimulating domestic demand such as businesses and households’.
III. The effect of increasing investment and employment from the improvement of the corporate tax bracket system and tax rate is also confirmed in the cases of the main OECD countries.
□ Corporate tax cuts* in the main OECD countries have empirically proven the impact of corporate tax cuts on investment and employment growth.
* Average OECD top tax rate (%, excluding local tax): (’17) 22.4 → (’18) 22.1 → (’19) 21.9 → (’20) 21.3 → (’21) 21.2
ㅇ OECD countries have competitively lowered corporate tax rates to attract foreign investment and expand investment.
ㅇ Korea has also continuously reduced corporate tax rates in successive governments*.
* (Kim Dae-jung administration) 2001 reform, 1% reduction in corporate tax base (Roh Moo-hyun government) 2% reduction in corporate tax base 2% in 2003 revision
□ It is expected that corporate tax cuts will ultimately increase the ability of companies to invest, leading to more investment and employment, boosting economic vitality.
ㅇ There is a study (Ljungqvist and Smolyansky, 2016) that the effect of corporate tax cuts on increasing employment and labor income is more evident when the economy is in trouble.
ㅇ In the past, due to the corporate tax cut in 2008, facility investment and employment* have increased significantly since 2010, and this shows the impact of the corporate tax cut in the medium to long term.
* Investment in facilities (year on year, %): (’08) △0.2 (’09) △8.1 (’10) 23.2 (’11) 5.5 (’12) 1.0 Employment rate (year on year, % p ): (’08) △0.1 (’09) △1.0 (’10) 0.4 (’11) 0.5 (’12) 0.4
Enquiries: Corporate Tax Division, Tax Office, Ministry of Strategy and Finance (044-215-4220)
