Separate Taxation on Dividend Income, Corporate and Education Tax Bills Passed... All Budget-Related Bills Approved (Comprehensive)

National Assembly Passes 16 Budget-Related Bills in Plenary Session
Debate Held on Key Issues Such as Corporate Tax
30% Top Tax Rate Applied to Dividend Income Over 5 Billion Won
Corporate Tax Raised by 1 Percentage Point Across All Brackets
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On December 2, the National Assembly passed 16 supplementary bills related to next year's budget, including the amendment to the Restriction of Special Taxation Act introducing separate taxation of dividend income, as well as bills to increase corporate and education taxes.

That afternoon, the Assembly held a plenary session and approved 16 supplementary budget bills, including the amendment to the Restriction of Special Taxation Act, which stipulates that dividend income received from high-dividend companies will be taxed separately at a rate of 14% to 30%, rather than being included in the consolidated income tax base.

The amendment to the Restriction of Special Taxation Act, which includes the introduction of separate taxation for dividend income, was passed with 201 votes in favor, 18 against, and 24 abstentions out of 243 lawmakers present.

The amendment to the Corporate Tax Act, which was submitted in its original government form due to a lack of bipartisan agreement, was passed with 169 in favor, 84 against, and 1 abstention out of 254 present. The amendment to the Education Tax Act was approved with 171 in favor, 84 against, and 1 abstention out of 256 present.

For corporate tax, all four taxable income brackets will see a 1 percentage point increase. The aim is to normalize the corporate tax rate, which was lowered under the previous Yoon Suk-yeol administration, and thereby increase tax revenue. For financial and insurance businesses with annual revenue exceeding 1 trillion won, the government has so far collected an education tax at a rate of 0.5%, but starting next year, this will increase by 0.5 percentage points to 1% under the amended Education Tax Act.

Dividend income to be taxed separately at 14-30%... Progressive lawmakers criticize as 'tax cuts for the wealthy'

Yonhap News Agency

The separate taxation of dividend income will take effect as early as next year. Specifically, once the consolidated financial statements for 2025 are released in March, dividends will be determined based on these statements, and the separate taxation will apply to dividends received from April onward. Separate taxation will apply if a company has a dividend payout ratio of 40% or more, or a payout ratio of 25% with an increase of at least 10% compared to the previous year. The original government proposal had stipulated 'a dividend payout ratio of 40% or more' or 'a payout ratio of at least 25% with an increase of 5% or more compared to the average of the previous three years,' but the ruling and opposition parties reached an agreement to further encourage higher dividend payouts.

The separate taxation rates for dividend income are as follows: 14% for up to 20 million won, 20% for over 20 million won and up to 300 million won, 25% for over 300 million won and up to 5 billion won, and 30% for over 5 billion won. After persistent negotiations in the Tax Subcommittee, the Small Subcommittee, and meetings between party leaders, the parties agreed to lower the top rate for dividends exceeding 300 million won from 35% in the government proposal to 25%, and to create a new 30% bracket for dividends exceeding 5 billion won. As there are only about 100 major shareholders receiving dividends exceeding 5 billion won, both parties recognize that the effective top rate is 25%.

Some have criticized this as a tax cut for the wealthy, arguing that it is a step back from the original government proposal. Assemblyman Cha Kyugeun of the Rebuilding Korea Party, in a speech opposing the bill, stated, "This overlooks the actual ownership structure of Korean companies," and argued, "The policy goal of expanding dividends will inevitably have very limited effects." He pointed out that the direct shareholding ratio of conglomerate owner families is only 3.7%, making them reluctant to pay dividends, and that they have maximized profits through practices such as funneling business opportunities, splitting listings, and receiving high salaries. He asserted that lowering taxes would not lead to an increase in shareholdings.

Assemblyman Cha also said, "Of the 30 trillion won in dividend income, the top 0.1% took 13 trillion won. There is no other type of income as heavily concentrated at the top as dividend income," adding, "If taxes are cut for these individuals, it is clear that inequality and polarization will worsen." Assemblyman Jeon Jongdeok of the Progressive Party also commented, "Dividend income is unearned income for a small number of asset holders. How can a tax cut policy for them be considered just or sustainable? It is an unfair benefit for a tiny privileged minority."

On the other hand, Lee Soyoung, the Democratic Party lawmaker who serves as the ruling party secretary on the National Assembly's Strategy and Finance Committee and has advocated for separate taxation of dividend income, countered, "If we simply raise tax rates for the wealthy, does that really mean our society's resources are distributed fairly and justly?" She added, "The dividend incentive policy, which proposes sharing surplus profits with shareholders and reducing taxes in exchange for not monopolizing profits, is worth reconsidering to determine whether it truly benefits the wealthy or ordinary citizens."

Lee further emphasized, "The current dividend income tax system treats both those who monopolize profits and those who distribute dividends the same, thereby encouraging low dividend payouts. Maintaining the current system is advantageous to the wealthy," highlighting the rationale for introducing separate taxation of dividend income.

Corporate and education tax increases pass in original government form... Government expects 22 trillion won increase in tax revenue over five years

Yonhap News Agency

The corporate tax bill passed in its original government form, as no bipartisan agreement was reached. During discussions in the Tax Subcommittee, lawmakers proposed various alternatives, including raising all four taxable income brackets by 1 percentage point (the government proposal), raising only the top two brackets by 1 percentage point, or raising only the top bracket by 1 percentage point.

However, during meetings of the Small Subcommittee and between party leaders, the ruling party insisted on raising all brackets by 1 percentage point to normalize the corporate tax rate lowered under the Yoon Suk-yeol administration and increase tax revenue. The opposition, on the other hand, argued for raising only the top two brackets by 1 percentage point to reduce the tax burden on small and medium-sized enterprises, which occupy the bottom two brackets, and thus no agreement was reached. According to the government proposal, the corporate tax increase is expected to raise a total of 17.4424 trillion won in tax revenue by 2030.

Assemblyman Park Sunghoon of the People Power Party, in a speech opposing the bill, criticized, "The Lee Jaemyung administration's corporate tax hike will only increase the burden on small business owners and SMEs, and even stifle the investment capacity of large corporations. It is a suffocating law for big businesses and a law that undermines national competitiveness." He continued, "It is a blatant attempt to take money from companies' pockets and use it for populist cash handouts."

In contrast, Assemblyman Jung Ilyoung of the Democratic Party responded, "The Yoon Suk-yeol administration lowered the corporate tax rate, but there was no actual policy effect such as increased investment. We need to restore the weakened tax base by taxing companies according to their ability to pay and use this as a catalyst to revitalize the economy."

The same applies to the education tax. The government proposal, which maintains the education tax rate at 0.5% for financial and insurance businesses with revenue of up to 1 trillion won, and raises it from 0.5% to 1% for those with revenue exceeding 1 trillion won, was passed. The opposition expressed concerns about fairness between tax systems and the potential for costs to be passed on to consumers, as the education tax is an indirect tax similar to value-added tax and could become more progressive. However, the ruling party, seeking increased tax revenue, did not back down. According to the cost estimate submitted to the National Assembly by the Ministry of Economy and Finance, the revised education tax is expected to increase tax revenue by 5.3333 trillion won by 2030.

Assemblyman Kang Myungsoo of the People Power Party pointed out, "The government and ruling party may boast about fostering regional universities in local elections using money extracted from the financial sector, but companies and consumers who bear the burden will pay a high price for government policies without gaining anything in return." Assemblyman An Dogeol of the Democratic Party countered, "This increase only applies to 54 mega-sized insurance and financial companies with revenue exceeding 1 trillion won. Their education tax burden was only 3-4% of their net profit last year, so the claim that this is excessive is completely unconvincing."

In addition, non-contentious supplementary budget bills were also passed, including amendments to the Income Tax Act to include art and physical education academy fees for students in grade 2 and below as eligible for income deduction, amendments to the Individual Consumption Tax Act to include tobacco products made from synthetic nicotine as subject to individual consumption tax, and more.

This content was produced with the assistance of AI translation services.