(Bloomberg) -- South Korean President Moon Jae-in's government plans to raise taxes on big corporations and high-earning individuals as part of efforts to address inequality.
Moon's administration will propose increasing the nominal tax rate on companies whose taxable income exceeds 200 billion won ($178 million) to 25 percent from 22 percent, the Finance Ministry said in a statement on Wednesday.
The income tax rate for individuals would rise to 40 percent from 38 percent for those earning more than 300 million won, and to 42 percent from 40 percent for those earning more than 500 million won.
The package of tax revisions would raise a net 5.5 trillion won of additional annual revenue, the ministry said.
Reducing inequality was a pillar of the five-year economic policy plan Moon released in July. It stressed the need to increase social spending and create more public-sector jobs while moving away from the country's conglomerate-led export model.
However, any revisions to tax laws need to be approved by parliament, where Moon's Democratic Party of Korea holds only 40 percent of the seats. The government will submit its proposal by Sept. 1, the finance ministry said.
The government will be able to pay for Moon's policies while keeping the ratio of government debt to gross domestic product under 40 percent, Finance Minister Kim Dong-yeon said last week.
"Stable tax revenue is very important for the government to play a bigger and leading role,” Kim said on Wednesday. "We decided it was desirable to adjust tax rates for individuals and conglomerates who are more capable."
Raising the corporate tax goes against the global trend, said Kim Doo-un, an economist at Hana Financial Investment Co. The total impact of the tax hike won't be that big given all the deductions available, “but to foreign investors who look into everything from stocks, currencies, earnings, to tax, it will definitely be a burden.''
Under the proposed revisions, 800 billion won will be used annually to provide tax benefits for companies that create jobs and for individuals with low wages.
The government also proposes cutting tax credits for large companies' spending on facility investment, research and development, while increasing benefits for companies that turn non-regular employment positions into regular ones. Higher tax deductions would also be granted to companies that hire women returning to the workforce.
To contact the reporter on this story: Hooyeon Kim in Seoul at hkim592@bloomberg.net.
To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig, James Mayger
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
