The ruling and opposition parties reached an agreement on the budget bill for 2023 on Dec. 22.
The floor leaders of the two parties agreed to lower the corporate tax rate by 1 percentage point across all tax bands. The ruling party pushed for a 3-percentage point cut for the top tax band, while leaving the rates in other bands intact. Yet the opposition party was against any cut in corporate tax rates. But the two sides accepted an arbitration proposal from the National Assembly speaker.
The two parties also agreed to delay the introduction of the financial investment income tax for two years, as proposed by the government.
Making a cut in corporate tax rates was the biggest bone of contention between the two parties. The ruling party wanted to lower the 25 percent tax rate applied to the top tax band to 22 percent in its bid to inject vitality into companies and induce corporate investment. Yet the opposition party refused to be persuaded, arguing that any cut in corporate tax rates will only benefit the wealthy.
According to the agreement between the ruling and opposition parties, only one percentage point will be cut in each tax band, and the tax rate will be lowered from 25 percent to 24 percent in the top section exceeding 300 billion won in tax base. The rate will be reduced from 22 percent to 21 percent for the 20 billion won-300 billion won band, from 20 percent to 19 percent for the 200 million won-20 billion won section, and to 9 percent for the section with a tax base of less than 200 million won.
It remains to be seen whether the small tax rate cuts will create a virtuous cycle of stimulating corporate investment and injecting vitality into the economy, as anticipated by the government and ruling party.
The ruling and opposition parties have agreed to defer the introduction of the financial investment income tax for two years, as proposed by the ruling party. The new tax was initially scheduled to go into effect on Jan. 1 next year. It calls for imposing a 22-27.5 percent tax (including local income tax) on people if their profits from investment in stocks, bonds, funds and derivatives exceed 50 million won a year.
The stock transaction tax will shrink step by step from the current 0.23 percent to 0.20 percent in 2023, 0.18 percent in 2024, and 0.15 percent in 2025 when financial investment income tax will come into effect.
