South Korea’s biggest private companies are receiving over $115 billion of state support while paying a tax rate lower than the average Korean household according to a recent study. Meanwhile President Park Geun-hye last week spoke of her desire to rein in public companies’ spending and debts.
The large companies, known as chaebols, received $19.4 billion in tax deductions and state financing last year said the Hankyoreh report. The largest portion of the $115 billion dollars was in loans and loan guarantees with three state controlled banks giving out 76 percent of their money to South Korea’s major corporations.
Large corporations are paying an average 16.8% in tax yearly according to data collected by Democratic Party lawmaker Hong Jong-hak based on figures from the National Tax Service. Meanwhile an average Korean household earning 46.8 million won a year pays 25 percent. Samsung Group pays the lowest of the companies analysed. The company pays a yearly tax rate of 16.1 percent, a single percentage point higher than someone earning between $11,000 and $43,000 a year, leading to allegations that Korea is a ‘veritable tax break paradise for chaebol.’ Meanwhile the Korean government fell 10.9 trillion won short of its planned tax revenues last year.
The Finance Ministry hints it will reduce its number of tax investigations in an effort to increase investment in the economy. “For a quicker and more solid economic recovery, it is necessary for policymakers to ease overly strict probes or slash the number of on-the-spot tax investigations” a ministry official was quoted as saying.
Towards the end of last year however, the government passed the Tax Revision Act of 2013, which legislates for higher taxes on top earners and large corporations.
The release of the data comes in the midst of Park Gun Hye’s drive to reform state owned enterprises in order to reduce their debts. “If the public companies keep (their) lax management (practices), we should let people know the realities of (public institutions) and let the public institutions take voluntary steps for change” she said in a speech last Monday. President Park promised to encourage the chaebols to become a more positive force for the Korean economy and she has moved to make them a part of her ‘creative economy’ policy. The latest disclosures have sparked criticism that President Park is moving increasingly toward a policy of deregulation for the chaebols that will give them more power.
Over the last 2 years global brands such as Apple, Starbucks and Amazon have been been accused in Britain and the USA of avoiding billions of dollars of taxes using offshore havens, tax deductions and creative accounting. The British organisation Tax Justice Network has been at the forefront of investigating the countries and companies involved in moving money secretly across borders to manipulate state regulations, and now releases a yearly index of the money lost in these transactions.
In both America and the UK, campaigns such as ‘we are the 99 percent’ and Robin Hood Tax UK have called for more state aid support for smaller companies and individuals rather than larger companies. There are those amongst the public who agree. “If they pay the same tax rate as the ordinary Korean, I think it is wrong” said Park Jae Gyu. “Samsung has played a major role in Korea’s society both economically and socially. So they should give benefits to the society and paying tax is a way of giving them back to the society” he added.
However, in Korea the exports of the 30 largest chaebols make up near 80 percent of Korea’s output and they hired 80 percent of college graduates in 2012. This has led outside observers to believe that solving the issue of how best to govern the largest companies in Korea will be a far more difficult task than other OECD countries.