From next year, a new bracket will be created for dividend income tax on taxable bases exceeding 5 billion won, and the top rate will be lowered from the current 45% to 30%. In contrast, corporate tax rates will rise by 1 percentage point across all brackets, and the maximum education tax rate paid by financial·insurance companies will increase by 0.5 percentage point. As a result, revenue is expected to increase by about 34 trillion~35 trillion won over the next five years, but it is viewed as neither a tax hike nor a tax cut because it does not go far enough to offset the Yoon Suk-yeol administration tax-cut policy.

On the 2nd, the National Assembly passed 16 budget-related bills containing these measures at a plenary session. The ruling and opposition parties reached agreement on tax-cut items such as separate taxation of dividend income, but the opposition opposed the corporate and education tax increases intended to partially roll back the Yoon Suk-yeol administration tax-cut stance, leading to the government proposal passing unchanged.

Accordingly, from next year the top income tax rate applied to dividends from high-dividend listed companies will be reduced to 30%. This is 15 percentage points lower than the current 45% and 5 percentage points lower than the government plan (35%). From next year, the following rates will apply by taxable base: up to 20 million won, 14%; over 20 million~up to 300 million, 20%; over 300 million~up to 5 billion, 25%; over 5 billion, 30%. The government original applied a uniform top rate of 35% for the over-300-million-won bracket, but the parties subdivided the brackets to 25% for over 300 million~under 5 billion and 30% for over 5 billion.

For associate members of mutual finance institutions such as NongHyup, Suhyup, and Saemaeul Geumgo, the non-taxable threshold for deposits·equity contributions is relaxed to a total annual salary of 70 million won. For associate members whose total annual salary exceeds 70 million won, interest·dividend income will be subject to separate taxation of 5% next year and 9% from 2027. The government had set the non-taxable threshold at 50 million won in total annual salary, but the scope of the tax benefit was expanded by bipartisan agreement.

In contrast, corporate tax passed in the government original form due to the failure of bipartisan agreement. From next year, rates will be raised by 1 percentage point across all brackets. The rates by taxable base are 10% for 200 million won or less, 20% for over 200 million~up to 20 billion, 22% for over 20 billion~up to 300 billion, and 25% for over 300 billion. This restores, after three years, the 1 percentage point corporate tax cuts across all brackets made in 2022 under the Yoon Suk-yeol administration.

The education tax rate applied to the income of financial·insurance businesses will also be raised as per the government plan, from 0.5% to 1% when the taxable base exceeds 1 trillion won.

The first tax law revision of the Lee Jae-myung administration that passed the National Assembly is seen as a compromise blending cuts and hikes. The Democratic Party considered lowering the top dividend income tax rate to 25% to promote payouts by controlling shareholders, but revised it to 30% as criticism grew that it would amount to a tax cut for the super-rich. Both sides stepped back but chose the path of a tax cut to vitalize the stock market. Because only a little over 100 taxpayers fall into the over-5-billion-won bracket, the effective top rate is viewed as 25%.

By contrast, the passage of the corporate and education tax increases in the government original form reflects the Democratic Party acceptance of the need to strengthen a weakened revenue base. Within the party, an option to exclude the lower two brackets, which include small and midsize enterprises, from the corporate tax rate increase was considered but was dropped at the last minute.

With this overhaul, revenue is expected to increase overall. An official at the Ministry of Economy and Finance explained that “the revenue-raising effect from passage of the revised plan is on the order of 34 trillion~35 trillion won over the next five years, not much different from 35.6 trillion won in the government original.” This still falls short of the roughly 80 trillion won five-year revenue shortfall the Lee Jae-myung administration inherited due to the Yoon Suk-yeol administration tax-cut policy.

Professor Jung Se-eun of the Department of Economics at Chungnam National University assessed, “Because it does not fully reverse the previous administration tax cuts, the adjustment is so modest that calling it a tax hike is ambiguous,” and added, “it remains insufficient to secure the revenue base needed for national tasks such as responding to a sluggish economy, easing polarization, the artificial intelligence (AI) grand transition, and addressing low birthrates·population aging.”