S Korea announces tax cuts to stimulate economy

FE Team | Published: September 02, 2008 00:00:00 | Updated: February 01, 2018 00:00:00

SEOUL, Sept 1 (AFP) South Korea announced today sweeping tax reforms, including income and corporate tax cuts designed to stimulate sluggish private consumption and business investment. brThe ministry of strategy and finance said the government would cut 20.7 trillion won (17.8 billion dollars) in taxes by 2012. Including oil tax cuts announced earlier, some 26 trillion won would be slashed. brThis will help our economy make a leap forward ... and reinvigorate investment by corporations, Finance Minister Kang Man-Soo told reporters. brThe government can maintain its fiscal soundness because lower taxes will boost economic growth, he said, adding the overall system would be streamlined. brThe plan, which needs parliamentary approval, comes as Asia's fourth-largest economy is showing signs of a slowdown. brGrowth slowed to an annual rate of 4.8 per cent in the second quarter from 5.8 per cent in the three months to March as soaring oil prices pushed up inflation and weakened domestic demand. brIn early July the finance ministry sharply trimmed its growth forecast for this year to below five per cent, saying rising oil prices and the global economic slowdown combined to pose a serious threat to the local economy. brThe government plans to cut income tax rates by two per cent over the next two years to ease the burden on middle-income earners. brIt will also cut corporate taxes, provide tax incentives for research and development and widen exemptions on dividends paid by subsidiaries to parent companies. brTax exemptions on capital used to build energy-efficient facilities will double to 20 per cent. brTax burdens on capital gains from the sale of high-priced real estate will be reduced to help stimulate the sluggish construction sector. brInheritance taxes will be lowered from a maximum 50 per cent to 33 per cent. The government will also raise exemptions for education and medical care expenses. brThe government will extend tax exemptions on investment funds to help stabilise the stock market. brThe individual consumption tax imposed on heating fuel will be cut by 30 per cent. brMeanwhile, South Korea's trade deficit swelled to 3.23 billion dollars in August due mainly due to high oil and raw material prices, the government said today. brPartial strikes at the nation's carmakers also pushed up the shortfall, the ministry of knowledge economy said in a statement. brAugust exports rose 20.6 per cent from a year earlier to 37.39 billion dollars while imports grew 37.0 per cent to 40.62 billion. brIt was the third straight month that the nation posted a monthly trade deficit after 430 million dollars in June and a revised 1.94 billion dollars in July. brThe ministry said that while crude oil prices fell last month, the time lag between actual and import prices meant this had only a limited impact. brHigh demand for steel products needed by shipyards also contributed to the rise in imports.