KOREA - The Ministry of Strategy and Finance said that it would lower taxes on transactions between parent companies and their subsidiaries or affiliates in a bid to improve business sentiment in the second half of this year.
Also, the Finance Ministry is moving to extend the tax deduction benefits on credit card spending by workers on average salaries until next year to subdue the contention following the government's plan to end such a deductible system.
In a meeting with corporate executive members of the Federation of Korean Industries in Jeju on Saturday, Deputy Prime Minister and Finance Minister Hyun Oh-seok said that the government hoped to "revive the economy through improved business investment in the latter half of this year."
The purpose of the incumbent administration's so-called economic democratization aimed at promoting market fairness and competition is not to hinder businesses, Hyun stressed, backtracking on its tough stance against conglomerates in tax and corporate regulations.
Korea currently imposes a gift tax on shareholders of parent companies that own more than a 3 per cent stake in units should more than 30 per cent of their sales come from intra-group transactions.
This law was devised to prevent tax evasion by controlling shareholders or owners of conglomerates.
However, the Finance Ministry is considering raising those regulatory rates to 5 to 10 per cent equity ownerships in units and sales exceeding 40 to 50 per cent of the total via transactions between parent companies and subsidiaries or affiliates.
Also, the government is considering extending the period of tax deductions on credit card spending next year, but lowering the deductible rate from 15 per cent to 10 per cent.
Korean workers and their dependents enjoyed a tax deduction of 15 per cent on credit card spending if their card expenditure exceeded 25 per cent of their gross income.
Over 6.7 million people benefited from this credit card usage deduction, with the annual total benefit averaging some 1.3 trillion won.
Whether to completely abolish this tax system had been debated heavily since the administration of President Park Geun-hye noted that it planned to reduce the number of tax exemptions and benefits as part of efforts to finance growing welfare costs.
The Finance Ministry may be likely to maintain the tax deductible rate of 30 per cent for spending via debit, check or cash cards, while looking into levying taxes on derivatives transactions.
The ministry is expected to draw up its tax revision bill for National Assembly approval by the end of September.