The Korean government has announced a wide-ranging series of tax proposals designed to stimulate the economy, including the expansion of the facility investment tax incentive for corporate investments made to increase productivity.
The Ministry of Economy and Finance (MOEF) said July 25 that its Tax Revision 2019 plan is also intended to broaden the tax base and make the tax code fairer and more inclusive.
The government said the proposed measures would decrease overall taxes by KRW 140.5 billion (around $119.2 million) in 2020 and KRW 444.1 billion in 2021 before increasing tax revenues by KRW 440.7 billion in 2022. Over the first five years, taxes would increase by a net KRW 3.7 billion.
The corporate tax take would drop by KRW 3.2 billion in 2020 and KRW 660.4 billion the following year before increasing by KRW 498 .9 billion in 2022.
The MOEF proposed doubling to 2 percent the facility investment tax reduction for large conglomerates, while increasing the incentive from 3 percent to 5 percent for medium-size companies, and from 7 percent to 10 percent for small enterprises.
The proposals call for extending the tax break for manufacturing facility and safety facility investments by two years and expanding the list of industries eligible for the tax reduction to include pharmaceutical and logistics companies that invest in high-tech equipment and facilities. Investments to improve safety for energy pipelines and liquid propane gas would also qualify for the incentive.
The government said it also wants to extend a 50 percent accelerated-depreciation provision by six months, to June 30, 2020, and expand it to include investments made to improve productivity, save energy, and promote innovation.
Other revisions to the corporate tax code would raise the limit for deducting losses incurred in the previous year from 60 percent of earnings to 100 percent, and increase the maximum amount of deductible maintenance costs from KRW 3 million to KRW 6 million.
The MOEF said it also wants to tax beer and unstrained rice wine at rates based on the beverages’ alcohol content.
Another proposal would reduce the inheritance tax surtax from 30 percent to 20 percent. The surtax, which is applied to the 50 percent nominal inheritance tax rate, kicks in for transfers of corporate shares when the decedent was the company’s largest shareholder. Korea’s inheritance tax rates, which are among the world’s highest, could ultimately threaten family control of the country’s famed "chaebol" conglomerates.
In its English-language summary of the proposed measures, the government called for lowering penalties by an unspecified amount on unreported overseas financial accounts and detaining habitual and large delinquent taxpayers for up to 30 days.
The government said it will submit the tax package to the National Assembly September 3.