Korean companies have tax withholding rates that are less than half the rates of American and Japanese companies. (Yonhap)
South Korean companies receive far fewer tax breaks compared to their counterparts in Japan and the United States, a report said on Wednesday.
According to an analysis by the Korea Economic Research Institute, the corporate tax withholding rate in South Korea was 8.4 percent in 2019, in Japan it was 24.8 percent and in the United States it was 18.6 percent.
This means that for every 100 won taxes paid, companies in the US get 18.6 won back and in Japan 24.8 won, while in South Korea companies get only 8.4 won back.
The report also pointed out that while South Korea has steadily reduced tax incentives, the US has gone in the opposite direction to give companies more breaks.
Between 2015 and 2019, the tax relief rate in South Korea rose from 12.5 percent to 8.4 percent. In the US, it rose from 10 percent in 2015 to 18.6 percent in 2018. The report did not include US data for 2019.
In Japan, the number fell slightly from 26.1 percent in 2015 to 24.8 percent in 2019.
Due to the low corporate income tax deduction, the gap between the nominal tax rate and the effective tax rate for South Korean companies was limited to 1.4 percentage points. American and Japanese companies had an average difference of 3.3 percentage points.
The think tank pointed out that an “effective tax rate is the tax actually paid after legal deductions and credits. A smaller difference between the nominal tax and the effective tax rate means that South Korean companies benefit less from the tax deduction. “
“If you look at the tax incentive rate by company size in South Korea, large to medium-sized companies got a 5.1 percent deduction, only a quarter of what SMEs deducted. In order to raise the corporate income tax incentive rate to the level in the US and Japan, the research and development tax credit needs to be increased, where about half of the tax incentive is granted, ”the institute added.
From Hong Yoo (firstname.lastname@example.org)