S. Korea’s tax competitiveness drops on tax bombshells in former government

South Korea is one of the least competitive countries in tax code among Organization for Economic Cooperation and Development (OECD) countries after its taxation index was cut in half over the past six years, mainly due to heavily increased tax burdens on large businesses and the rich during the former Moon Jae-in administration, data showed on Sunday.

According to Tax Foundation’s data analyzed by Maeil Business Newspaper, Korea’s international tax competitiveness plummeted to 25th (64.1 scores) among 38 OECD members this year from 12th (71.8 scores) in 2017 when former President Moon Jae-in took office.

Asia’s fourth largest economy suffered the largest drop following Ireland (fall by 19 notches) in the OECD club that excludes Lithuania, Costa Rica, and Colombia with no comparable data. Ireland implemented a tax policy to impose a 51-percent dividend tax during the period.

South Korea’s ranking was significantly lowered in corporate and property tax. During the former Moon administration, the top corporate tax rate increased from 22 percent to 25 percent, and the comprehensive real estate tax rate rose from 0.5-2.0 percent to 0.6-6.0 percent.

The country’s corporate tax competitiveness skidded to 34th this year from 16th on average before 2017. This is the lowest level since Tax Foundation started evaluation in 2014.

Many advanced countries are lowering corporate tax rates to enhance their tax competitiveness, said Choo Kwang-ho, economic research division head at the Federation of Korean Industries (FKI). Korea needs to strengthen its corporate competitiveness by lowering corporate tax rates while expanding tax sources, he suggested.