Korea to scrap tax benefits for companies with seniority-based pay system

Korea to scrap tax benefits for companies with seniority-based pay system [Photo by MK DB]

South Korean companies that pay their employees seniority-based salaries are expected to be drawn back from tax incentives under a labor reform plan being pushed by the Yoon Suk-yeol government.

Maeil Business Newspaper has learned Thursday that a newly launched committee on “win-win” wages is planning to offer more incentives to companies that reform their overall wage systems. Under the plan, companies that offer salaries based on work performance will be given incentives while those that pay wages based on employee’s years of service will receive none. The committee plans to announce details in April.

“The plan will no longer offer tax credits to companies (engaged in seniority-based wages),” said an unnamed government official. “We have not yet decided on the details of tax criteria but we will reflect them in the tax revision proposal in the second half of this year.”

The move comes as the government recognizes that it’s not effective in urging companies to adopt merit-based pay system without providing incentives, such as tax grants, as the scheme is opposed fiercely by union members.

When it comes to current tax incentives related to employment, companies are offered tax deduction when they hire more workforce. More credits are given to those that employ more.

The win-win wage committee also plans to narrow the wage gap between companies and their suppliers based on the principle of equal pay for work of equal value.