Concerns Over Quasi-Taxes and Collusion... Corporate Tax Revenue May Decline After Semiconductor Boom

Hometown Love Donation Program Grows from 65.1 Billion to 151.5 Billion Won

Despite Scale, Average Per Local Government Stays Around 600 Million Won

Key Issues Remain: Headquarters-Based Donations, Impact on Other Charitable Giving, and More

The Hometown Love Donation Program appears to be a success in terms of its overall scale, with cumulative donations nearing 300 billion won in just three years since its implementation. However, many point out that the program falls short in terms of substance. The structural limitations—such as regional concentration of donations and a low rate of fund execution—combined with a negative growth shock in the first quarter, prompted the government to consider introducing corporate donation cards despite anticipating controversy over the quasi-tax nature of the scheme.

Average Donation per Local Government: 600 Million Won... First Negative Growth in Q1 This Year

According to the Ministry of the Interior and Safety on June 1, the total amount raised by the Hometown Love Donation Program grew rapidly, increasing by 72% from 65.1 billion won in its first year, 2023, to 151.5 billion won last year. However, when divided among the 243 local governments nationwide, the average per local government is only about 620 million won. This amount is far from sufficient to shore up the finances of local governments on the brink of fiscal collapse. This year, the growth trend has even reversed. Starting this year, the government raised the tax deduction rate for donations between 100,000 and 200,000 won from 16.5% (including local taxes) to 44%. Nevertheless, the total amount raised in the first quarter was only 15.3 billion won, a decrease of 16.4% from the previous year.

Polarization among local governments and the low fund execution rate are also major issues. While 90% of total donations were made to regions outside the greater Seoul area, extreme concentration occurred depending on each local government's promotional capabilities and the quality of return gifts. Many counties failed to reach the national average in terms of funds raised. The average fund execution rate of local governments was also low, at just 31.5%. As of December last year, only 47.8 billion won out of the 151.5 billion won raised had actually been spent. There were 184 local governments with an execution rate below 50%. Moreover, 75 local governments—accounting for 30.9%—did not select any projects for the use of the funds at all. As a result, money that should have been used to support vulnerable groups or improve residents' welfare ended up sitting idly in government coffers, unable to find an appropriate use. Kwon Sunpil, Chair of the Special Committee on the Hometown Love Donation Program at the Korean Association for Local Government Studies, stated, "The negative growth in donations during the first quarter reveals that the current program has hit structural limitations," and added, "At the very least, corporate donations should be selectively allowed for depopulated and special disaster areas."

Concerns Over "Effectively a Mandatory Levy"... Excessive Tax Expenditure Could Burden Fiscal Authorities

There are numerous issues to be resolved before corporate donations can be institutionalized. One question is whether to base donations on the location of a corporation's headquarters or on a local government designated by the corporation. Another point of discussion is whether to distinguish between for-profit and nonprofit corporations. Since corporations and organizations operate on a national scale, if local governments at each branch level request donations, it could turn into de facto compulsory fundraising rather than voluntary giving. Allowing corporate donations also raises concerns that, if the overall donation pool remains unchanged, contributions to social and welfare facilities may decrease. There is also considerable concern that relationships between corporations and local governments could turn into collusion, with companies demanding returns in exchange for donations. Shin Seungkeun, President of the Korea Institute of Local Finance, remarked, "Corporations inherently pursue profit, so unlike individuals, they may demand unfair economic benefits rather than donate out of goodwill." In his study last year, "A Study on the Introduction of Corporate-type Hometown Love Donation Programs in Depopulated Areas," Shin proposed that Korea should, if introducing such a program, 1) limit its scope to depopulated and priority interest areas, 2) fully compensate corporate donations to government-approved projects through corporate tax and local income tax deductions, and 3) establish a reward-based funding scheme allowing up to 30% in additional benefits.

If incentives for corporate donations are provided in the form of corporate tax deductions, a reduction in national tax revenue is unavoidable. Given that 19.24% of national tax revenues are linked to local allocation tax, a decrease in corporate tax would directly lead to a reduction in the amount distributed to local governments, creating a contradiction. As the government undertakes sweeping spending reforms, disagreements among ministries are also expected regarding the idea of expanding "tax expenditures"—measures that effectively reduce tax collections. Won Jonghak, Senior Research Fellow at the Korea Institute of Public Finance, warned, "Recently, corporate and securities transaction tax revenues have surged due to the boom in semiconductors and the stock market, so for now, tax revenues may appear sufficient. However, when the boom ends, the side effects of this policy could become more pronounced," adding, "This would not only place a significant burden on fiscal authorities but could also lead to a reduction in local allocation tax distributed to local governments."

The Ministry of Economy and Finance has included the Hometown Love Donation Program as a subject for discretionary in-depth evaluation in its "2026 Basic Plan for Tax Expenditures." The intent is to assess whether the program, in exchange for tax benefits, has actually contributed to addressing local extinction and revitalizing the local economy. An official from the ministry commented, "The in-depth evaluation is not being conducted with a predetermined direction of either expanding or reducing the program," and added, "If requested by the Ministry of the Interior and Safety, we will review the issue of corporate donations."

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