Seoul Pivots to Expansionary Policy with Proposed Tax Hikes
outh Korea's new government announced plans on Thursday to roll back corporate and investment tax cuts implemented by the previous administration, aiming to secure funding for an expansionary fiscal policy designed to spur economic growth.
The proposals, part of the country’s annual tax code revision, mark a significant policy reversal under liberal President Lee Jae Myung, who took office in June following the impeachment of his conservative predecessor, Yoon Suk Yeol.
President Lee has championed increased government spending to support the economy, already introducing a 31.8 trillion won ($23 billion) supplementary budget that includes cash handouts for all citizens to boost domestic demand.
“The focus of this year’s tax code revisions is on strengthening the revenue base for fiscal sustainability, while supporting a leap forward as an economic power and stability of people’s livelihoods,” said Vice Finance Minister Lee Hyoung-il.
The move comes after government tax revenue fell for two consecutive years amid an economic slowdown and the prior administration’s tax cuts. While Asia’s fourth-largest economy saw strong Q2 growth, it faces headwinds from global trade tensions, prompting the IMF to recently downgrade its 2025 growth forecast.
Under the plan, the corporate income tax rate will rise by one percentage point to its former 10-25% range. The stock transaction tax will be increased to 0.2% from 0.15%, and the capital gains tax threshold for ‘large shareholders’ will be lowered from 5 billion won in holdings to 1 billion won.
To counter the tax hikes and encourage investment, the plan also includes new incentives. Dividend income from companies with high payout ratios will be taxed at lower rates to address the “Korea discount,” and investments in designated “national strategic technologies” like AI, as well as the cultural sector including “K-dramas,” will receive new tax breaks.
The government intends to submit the proposals to parliament, which is controlled by the ruling Democratic Party, by September 3.
($1 = 1,382.5200 won)
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