Ending the strange double taxation

Remedying inefficient factors in the tax code and removing tax-related uncertainties can certainly induce Korean companies to invest more at home to help bolster both tax revenue and national competitiveness.

The government has more work to do as the economy expands and society becomes complex. Certainly, a higher budget will be needed and it can only be covered by income taxes. Tax dues will naturally increase. On top of the increasing burden, an unreasonable taxation causes vexation for taxpayers. One example of this is the double taxation levied on the same income source.

The government and some politicians have been arguing for scrapping the comprehensive real estate ownership tax as it overlaps with the property tax. The inheritance tax also can be deemed a multiple levy, as the government collects taxes on the very assets which were already taxed during the lifetime of descendants.

They are not the only cases. In a recent report, the Korean Chamber of Commerce and Industry (KCCI) accused 20 out of 25 national and local tax categories of double taxation. The KCCI also mentioned problems with corporate taxes. Large companies must pay a maximum 24 percent on their annual income plus another 20 percent on their excess reserve for facility investment or mutual growth expenditures. The additional tax is billed for the extra money that didn’t go to investment and wage increases. Dividends for shareholders also have room for multiple taxation.

Tax authorities have clear grounds for the levies and cannot accept business requests for tax cuts. But too many duplicated levies can undermine the transparency of taxation and the tax code, as well as dampen the energy of households and the corporate sector. In the IMD World Competitiveness Yearbook 2024, Korea ranked 34th in tax policy, down 8 notches due to excessive tax burdens.

In the face of heavy taxes, wealthy companies and individuals are fleeing the country one after another. According to the National Tax Service, large shareholders of listed companies filing for outbound taxation totaled 26 last year, doubled from 2018. A British wealth consulting firm estimated that a net outflow of high-net-worth individuals from Korea would reach a record 1,200 this year. The KCCI pointed out that “inefficient tax management can negatively affect decisions of economic agents.”

Companies respond if outdated and unjust systems are corrected. For instance, Hyundai Motor Group brought home its overseas reserves of $5.9 billion to invest in electric vehicle infrastructure in Korea after the government’s double taxation on overseas dividends was redressed. Remedying inefficient factors in the tax code and removing tax-related uncertainties can certainly induce Korean companies to invest more at home to help bolster both tax revenue and national competitiveness. The government and the National Assembly must keep this in mind when they revise the tax code soon.