SEOUL • South Korea has raised the income tax rate for the nation's highest-earning companies, as President Moon Jae In seeks to fulfil his vows to fight inequality and create jobs.
The tax vote came just hours before the nation's Parliament passed a 428.8 trillion won (S$528 billion) Budget for 2018 after midnight in Seoul yesterday.
The Budget is expected to raise revenue by nearly 8 per cent to help fund spending on public sector jobs and social welfare programmes.
Lawmakers agreed to raise the income tax rate on firms whose taxable income exceeds 300 billion won to 25 per cent from 22 per cent, the current top rate. The rate on individuals earning more than 500 million won will rise to 42 per cent from 40 per cent.
While those tax increases count as a modest victory for Mr Moon in his Budget battle with opposition parties, he had hoped to apply the new corporate rate at a lower income threshold of 200 billion won.
Raising corporate taxes runs counter to the global trend. Other countries, including Japan and the United States, are moving to cut them, with American lawmakers set to slash the rate to 20 per cent from 35 per cent.
Korea Chamber of Commerce and Industry's head of corporate policy Kang Seog Gu said it is hard to predict the economic impact of the higher corporate tax rate in the short term. "Theoretically, it is a burden on companies, but it can have a positive impact on corporate activities over the longer term, depending on how the government manages its spending to support consumption."
About 77 companies will be affected by the higher rate, with their collective annual tax burden rising by about 2.3 trillion won, Finance Ministry estimates show. Samsung Electronics paid the most corporate taxes in 2015 at 3.2 trillion won, followed by Hyundai Motor at 1.4 trillion won, said a March report by the National Assembly Budget Office. These are 2015 estimates based on financial statements.
The total Budget figure was in line with earlier plans and marks a rise of about 7 per cent on the initial 2017 Budget.
The Budget also includes plans to hire 9,500 more central government officials next year, less than the initial proposal for about 12,200. Mr Moon was elected in May with promises to cut inequality and to be a "jobs president".
The opposition and ruling parties had struggled to reach agreement on the spending plan, especially over increasing the number of public officials and the corporate tax rate. This led to them failing to pass the Budget by its Dec 2 deadline. Lawmakers from the Liberty Korea Party, the biggest conservative party, boycotted the votes.