Korea's corporate tax accounts for a far larger share of total tax revenue than in major competitor countries. According to a research report recently submitted to the Board of Audit and Inspection by the Korean Association of Public Finance, the share of corporate income tax in total taxes stood at 14.4% as of 2023, exceeding the Organization for Economic Cooperation and Development (OECD) average of 11.8% by 2.6 percentage points. By contrast, the share of personal income tax was 19.8%, 3.9 percentage points below the OECD average of 23.7%. Consumption tax and value-added tax were also lower by 8.6 percentage points and 5.2 percentage points, respectively.
A revenue structure heavily skewed toward corporate tax can magnify uncertainty in the tax base and undermine the predictability of fiscal planning. According to the report, the standard deviation of year-on-year changes in corporate tax revenue from 2017 to 2024 reached 26.3 percentage points, 2.6 times that of income tax (10.1 percentage points) and 2.9 times that of value-added tax (9.1 percentage points). Because corporate tax is tied to corporate earnings, it inevitably swings with the business cycle. In 2023 and 2024, when the semiconductor industry slumped, corporate tax revenue plunged by 22.4% and 22.3% from the previous year, respectively, producing record shortfalls. This year, riding a semiconductor super-cycle, excess tax revenue is even expected, but the trend could reverse at any time.
The bigger problem is that an excessive share of corporate tax can severely constrain the global competitiveness and survival capacity of Korean companies. Major competitors such as the United States and the United Kingdom are racing to cut corporate tax rates to strengthen the competitiveness of their domestic firms and attract more global capital investment. Neighboring Japan has phased in corporate tax cuts alongside bold deregulation, creating a virtuous cycle of corporate investment, wage hikes, expanded consumption and rising tax revenue.
The government must ease the corporate tax burden to bolster business survival. It is time to move away from the administrative convenience of shifting the burden onto companies, where tax resistance is weaker. Layers of regulation must also be boldly dismantled to spur domestic corporate investment and job creation. Before considering channeling excess semiconductor tax revenue into a national dividend or a sovereign wealth fund, the government should first build an investment and innovation ecosystem that allows companies to nurture next-generation growth engines. Efforts to diversify a tax revenue structure tilted toward corporate tax must not be neglected.
