South Korea would see a budget shortfall of 2.5 trillion won ($2.21 billion) in this year’s corporate tax income, down 22.4 percent from a year ago due to the economic fallout from the coronavirus, a study found.
Corporate tax revenue is projected at 56 trillion won for this year, off 4.3 percent from the government estimate and down 22.4 percent from 2019, according to Korea Economic Research Institute (KERI) in a study commissioned by Maeil Business Newspaper.
The study was based on corporate business data from 2010 to 2019 that looked at the correlation between corporate tax rates and tax revenue.
Income from companies accounted for nearly a quarter of last year’s tax revenue of 293.5 trillion won.
The country’s top five companies by sales – Samsung Electronics, Hyundai Motor and Kia Motors, SK Hynix and LG Electronics – together paid 17.6 trillion won in taxes last year, making up 24.4 percent of the total corporate tax revenue.
Their tax payments are expected to plunge 72 percent to 4.9 trillion won this year due to the coronavirus blow. 2019 had already been a tough year for the companies, with their combined operating profit down 70.4 percent from the previous year at 19.3 trillion won. This year’s earnings are expected to be even worse.
The pandemic has forced the government to revise down its corporate tax revenue projection for this year to 58.5 trillion won from 64.3 trillion won. The KERI study has put the figure even lower at 56 trillion won.
Corporate income taxes reported in the first eight months of the year totaled 41.8 trillion won, down 25.8 percent from the same period a year earlier and just 71.5 percent of the annual target. The five-year collection rate had averaged 76.3 percent.
Unlike most developed economies, Korean corporate taxes were hiked rather than cut.
Among the 37 member countries in the Organization for Economic Cooperation and Development, 21 countries including the U.S., U.K. and Japan had lower corporate tax rates in 2020 from 2010, according to KERI. As a result, the OECD average corporate tax rate had fallen to 23.5 percent from 25.4 percent during the decade.
In contrast, Korea in 2018 installed a new income bracket for companies earning 300 billion won and raised the maximum tax rate to 25 percent from 22 percent.
By Kim Jung-hwan and Kim Hyo-jin
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]