On Thursday, South Korea proposed tax reductions to encourage businesses to relocate back to the country and to stimulate domestic growth by fostering the biopharmaceutical and visual entertainment industries, aiming to decrease reliance on traditional manufacturing.
As the country with the lowest birth rate globally, South Korea will also increase financial support for marriage and home buying, along with enhancing childcare subsidies, as part of other annual tax law amendments proposed by the Ministry of Finance.
The Ministry estimates that these 31 proposals will reduce tax revenue by 471.9 billion won (approximately $37.15 billion) over the next five years. Last year's proposals amounted to 13.1 trillion won, but only a portion was approved in a parliament dominated by the main opposition party.
"As we conducted substantial tax reforms last year, the government has prepared a tax amendment bill that aims to maintain a balanced budget as much as possible," said South Korean Finance Minister Chu Kyung-ho at a briefing on Monday, with the official release following on Thursday.
With economic growth slowing down, tax revenues are also decreasing. The government expects this year's growth rate to be 1.4%, the lowest in three years, and 2.4% for 2024.
The Ministry suggests a seven-year corporate income tax exemption period for businesses investing domestically to relocate production from overseas, followed by a 50% exemption for the next three years, instead of the current five and two years.
It proposes that the tax exemption rate for revenues generated from entertainment content should be increased from the current 3-10% to up to 30% and suggests including the biopharmaceutical industry in the list of sectors eligible for higher investment tax benefits.
While gifts from parents to children are taxable upon reaching a certain threshold, the Ministry proposes tripling the current exemption limit if the money is used for marriage purposes. It also suggests doubling child birth and childcare incentives and proposing an increase in the income tax deduction limit for mortgage payments.
The Ministry states that most of the tax revenue shortfall will come from increasing child birth subsidies, suggesting a 25% increase in child birth subsidies, up to 1 million won per child, with more lenient conditions.
These proposals will be submitted to the parliament for review by September 1, requiring amendments to 15 tax laws.
