April 27, 2024

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[THE INVESTOR] The Korean economy will likely take a hit from a reversal of top corporate tax rates, a local think tank said on Dec. 27.

Korea has decided to raise the maximum corporate tax rate to 25 percent from the current 22 percent, while the comparable rate for America will go down to 21 percent from the existing 35 percent.

In a related report, the Korea Economic Research Institute estimated the reversal would cause Korea’s gross domestic product to decrease by an annual average of 29 trillion won (US$27 billion) over the next decade.

That would be tantamount to an annual decline of 1.7 percent in the country’s GDP during the 10-year period.

Corporate capital spending is estimated to shrink at an annual average rate of 4.8 percent, with the country likely to lose 105,000 jobs annually.

Koreans’ capital and earned income would also likely decline 1.9 percent and 1.5 percent annually over the cited period, respectively, leading to a plunge in household income.

“The envisioned hike in the maximum corporate tax rate is unlikely to boost income redistribution in Korea, given the fact that slower growth has resulted in big cuts in wages for unskilled workers and their massive layoffs,” said Cho Kyung-yup, a senior researcher at KERI affiliated with the conglomerate lobby Federation of Korean Industries.

According to the report, Korea’s corporate tax hike would decrease its exports by an annual 0.5 percent over the period and imports by 1.1 percent, which would improve its trade balance by 8.9 percent.

By Alex Lee and newswires (alexlee@heraldcorp.com)