South Korea will seek to expand its corporate tax benefits next year in an effort to encourage job creation and help bolster the nation's overall economy, the finance ministry said Wednesday.

   Unveiling a revised tax bill, the Ministry of Strategy and Finance, however, said the government decided not to cut income and corporate tax rates, a move widely seen as a withdrawal from its earlier pursuit of lowering the tax burden on wealthy individuals and large businesses.

   The government revises the country's tax code every year to prepare for its tax policy the following year. The tax revision bill is subject to parliamentary approval.

   "This year's bill focuses mostly on creating jobs and supporting sustainable growth," Finance Minister Bahk Jae-wan told reporters. "We also seek to provide support for low- and middle-income citizens ... and push to maintain fiscal soundness by broadening the overall revenue base."

   Under the bill, the government will halt the decades-old temporary investment tax credit policy and instead it will introduce tax deductions only for those companies that maintain or increase their payrolls, the ministry said.

   The temporary investment tax credit policy has been in place since 1981 to encourage corporate investment.

   As the government keeps extending the "temporary" policy almost every year, critics have argued that its impact of inducing investment has declined as companies perceive the benefits to be permanent.

   Both small and large firms will be able to receive tax deductions of up to 6 percent on investment if they increase their hires. Last year, those tax credits were related to both investment and employment.

   In a related move to encourage job creation, the government will also provide smaller companies tax deductions on social insurance payments for two years if they hire new workers. Younger people hired by small- and medium-sized enterprises will be exempt from paying income tax until 2013, the ministry said.

   The ministry will also expand subsidies to encourage employment for low-income households.

   Households with less than 25 million won (US$23,320) in annual income will be eligible for the subsidies intended to encourage their job-seeking efforts. They could receive up to 1.8 million won a year, up from the current 1.2 million won.

   The 2011 tax bill also focuses on broadening the tax revenue base for the government and establishing a "fair" society by toughening crackdowns on tax evasion and shady business deals that hurt fair market competition.

   In an effort to establish a fair society, the government will push to impose taxes on profits reaped through "unfair" business deals.

   The taxation is in response to criticism that some large conglomerates illegally favor their subsidiaries in business contracts. The tax will be levied on large stakeholders of subsidiaries suspected of benefiting from such shady deals, the ministry said.

   The government will also toughen its crackdowns on tax evasion. It will unveil a list of names of tax dodgers if they have 500 million won or more in unpaid taxes, down from the current 700 million won, the ministry said.

   The tax collection work will be contracted out to the private sector to enhance efficiency. The procedure of punishing tax dodgers will also be streamlined, according to the ministry.

   This year's tax revision focuses on expanding tax benefits on research and development in the service sector and extending tax deductions on investment being made in energy-efficient facilities.

   Tax cuts will be offered for purchases of electric cars and buses to push for the government's pursuit of "low carbon, green growth."

   Meanwhile, the government and the ruling Grand National Party earlier agreed to keep the current income and corporate tax rates unchanged.

   Tax cuts have been a controversial issue in the political arena. The government has sought to lower tax rates for high income earners and conglomerates but lawmakers had opposed the move, saying that it would only benefit the wealthy.

   Currently, the tax rate for the highest annual income bracket of more than 88 million won stands at 35 percent. The government imposes a 22 percent corporate tax rate on taxable income of 200 million or more.

   In an apparent compromise, the government will introduce a new taxable income bracket for companies ranging from 200 million won to 50 billion won and impose a 20 percent tax rate on those firms, most of which are small- and mid-sized enterprises, the ministry said.

Source: Yonhap News (Sept. 7, 2011)