SEOUL – The approval of the corporate tax cut plan in the United States will negatively affect the South Korean economy over the next decade, as the Asian country has recently raised its corporate tax rate, South Korean experts said on Wednesday.
South Korea has decided to raise the maximum corporate tax rate from 22 to 25 percent, while US President Donald Trump’s tax reform will decrease the corporate tax rate from the current 35 percent to 21 percent, which is expected to attract large businesses to the US.
The Korea Economic Research Institute said in a report, cited by the local news agency Yonhap, that the corporate tax reversal of the two countries would cause South Korea’s gross domestic product to drop by an annual average of 29 trillion won ($26.9 billion) over the next decade, leading the East Asian country’s GDP to decline 1.7 percent annually during the period.
The research institute also expects the corporate capital expenditures in South Korea to fall by 4.8 percent per year, and the country to lose about 105,000 jobs annually.
South Koreans’ capital and earned income would also decline by an annual average of 1.9 and 1.5 percent, respectively, which would result in a slump in household income.
The report added that the move to increase corporate taxes would reduce exports by an annual average of 0.5 percent over the next decade while imports would drop by 1.1 percent per year, which would improve its trade balance by 8.9 percent.
On the other hand, the US tax overhaul is expected to help increase its GDP by 2.7 percent per year during the upcoming 10-year period, while its corporate capital expenditures would likely increase by 13.6 percent.
The US tax cut plan would also help create some 818,000 jobs a year and expand its exports and imports by 0.1 and 2.8 percent, respectively.