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THE INVESTOR
May 19, 2021

[Editorial] Politicized levies

  • PUBLISHED :March 23, 2021 - 05:30
  • UPDATED :March 23, 2021 - 05:30
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A group of ruling party lawmakers recently proposed a bill designed to create more jobs for young people by collecting additional taxes from companies.

The bill would oblige private firms to pay what is termed as a youth tax, amounting to more or less 1 percent of their business income. This is the equivalent of increasing the country’s corporate tax rate by the same amount. In 2018, South Korea’s maximum corporate tax rate was raised to 25 percent from 22 percent.

Young people have been hit harder by worsening labor market conditions. The unemployment rate for young adults -- those aged between 15 and 29 -- reached 10.1 percent in February, more than double the overall jobless rate of 4.9 percent, according to data released by the state statistics office last week. The figure is estimated to soar to nearly 30 percent when youths who work less than 36 hours per week or have given up looking for jobs are counted in.

Despite the urgent need to ease woes faced by young job-seekers, it is still nonsensical to collect more levies from private companies for the purpose of adding jobs for youths. Local businesses, particularly large, profitable ones, are already burdened with heavy taxes.

An analysis by an opposition legislator’s office last month showed levies from companies accounted for 15.7 percent of Korea’s total tax revenues in 2018, far above the average of 10 percent for member states of the Organization for Economic Cooperation and Development. The corresponding figures stood at 4.1 percent in the US and 5.6 percent in Germany.

The top 1 percent of companies in terms of turnover paid 78.4 percent of all corporate taxes collected here in 2018, up from 75 percent four years earlier. Over the cited period, their proportion of corporate earnings was down from 51.6 percent to 50.2 percent.

An effective and fundamental way to ease the intensifying unemployment problem is to promote more corporate-friendly conditions to encourage companies to increase investment and employment. President Moon Jae-in’s administration has taken the opposite direction since it assumed office in May 2017. In line with its pro-labor stance, it has imposed stricter regulations on private businesses, dampening corporate activity -- particularly in the innovative sectors that are so crucial to the proliferation of the sort of high-paying jobs that young people prefer.

The Moon government’s focus on increasing employment with taxpayers’ money has led to a rise in the number of temporary and part-time jobs, with most of the added positions having been taken by elderly people.

In 2016, then-National Assembly Speaker Chung Sye-kyun, who currently serves as prime minister, first made the proposal to introduce a new levy on corporations to help fund job and other support programs for youths. But he later withdrew it in the face of criticism that the measure would place excessive tax burdens on private businesses.

The revival of the idea comes in line with what critics see as a reckless attempt by the ruling party and the Moon administration to use taxation as a political tool.

Another lawmaker from the ruling Democratic Party of Korea is preparing to submit a bill to introduce what is coined as a special tax for social solidarity, which is designed to collect additional levies from the wealthy and large corporations to help those vulnerable to the economic shock of the pandemic crisis. The legislation would come on top of a string of massive pandemic relief packages.

Taxation on homeownership is also criticized for having been politicized.

The government said last week that it would cut property taxes for 92 percent of apartment units nationwide, the tax base for which is below 600 million won ($529,848). But owners of apartment units with a tax base above 900 million won, which account for 3.7 percent of the total units, will be made to pay punitively high holding taxes. A steep rise in home prices -- caused by the government’s measures to restrict the housing supply and make mortgages harder to obtain -- increased the number of apartment units subject to the comprehensive real estate tax as well as the property tax by about 70 percent over the past year to 524,620.

Changes in the taxation scheme have a deep and far-reaching impact on corporate competitiveness and individual lives. The ruling party and the government are urged to refrain from tampering with the system in order to achieve political gains or gloss over the negative effects of their own ill-conceived policies.
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