[fn Editorial] Corporate Tax Increase and Yellow Envelope Law Enforcement, Companies are Frustrated

Although the worst was avoided, the burden on companies has increased as the government has proposed a tax reform plan to raise corporate taxes amid the confirmation of U.S. tariffs. According to the tax reform plan announced by the government on the 31st, the corporate tax will be adjusted upward by 1%p, returning the maximum rate to 25%, the level of 2022. The standard for major shareholders subject to capital gains tax on stock transfers has been raised again from 5 billion won to 10 billion won.

The government has two reasons for raising corporate taxes. It claims that the tax cuts by the previous administration shook the principle of ability-to-pay taxation (taxation according to the taxpayer's ability to pay). In fact, during the previous administration, the ruling and opposition parties clashed over corporate tax cuts, and the then-ruling party compromised with a 1%p cut. It was not an excessive tax cut, and even at the current rate, Korea's maximum corporate tax rate is among the highest in major countries.

The second reason is to respond to declining tax revenues by raising the corporate tax rate. Corporate tax revenue, which was 103.5 trillion won in 2022, plummeted to 62.5 trillion won last year. This was due to the economic recession and poor business conditions of companies, not because of tax cuts. It is said that if the corporate tax rate is restored, tax revenue will increase by about 4.3 trillion won.

While raising the corporate tax rate will naturally increase tax revenue, it will reduce corporate profits and shrink investment. This is indirectly proven by the decrease in foreign investment due to the Moon Jae-in administration's tax increase policy. The government argues that even if taxes are reduced, companies have accumulated retained earnings without investing the profits they have earned.

However, if investment has decreased, it is because corporate profits have decreased due to the recession. During a recession, it is difficult for companies to make aggressive investments. It is a management principle to accumulate profits and wait for the right time to invest. Countries around the world are cutting taxes as if competing in advanced industries. The intention is to let companies freely engage in business activities. If companies with reduced tax burdens earn more profits, corporate tax revenue will naturally increase.

The business community also continued to lament over the so-called Yellow Envelope Law (Labor Union and Labor Relations Adjustment Act Amendment 2·3) recently passed by the National Assembly's Environment and Labor Committee. Son Kyung-sik, chairman of the Korea Employers Federation, held a press conference on the 31st and requested the suspension of the amendment, saying, "If the Yellow Envelope Law is passed, frequent strikes will shake the industrial ecosystem to its roots." He also said that if hundreds of subcontractor unions demand negotiations, it will be impossible to respond, and the damage will be borne by the workers. It is not an unreasonable statement.

Although the foreign industry has expressed the same concerns, the government's and ruling party's determination regarding the Yellow Envelope Law is firm. However, it is the government's responsibility to strive for balance in labor-management relations. If power leans to one side, it will have a negative impact on the entire economy. Once granted, it is difficult to retract the authority. If South Korea becomes a "strike paradise" where most companies cannot conduct business, it will be too late. We hope that the last appeal of the business community will not be ignored. Workers' rights are important, but the economy must come alive first.