SEOUL -- South Korea announced on Wednesday plans to increase the tax rates for top corporations and the wealthy starting next year. The government claims the additional tax revenues, estimated at 5.5 trillion won ($4.9 billion) annually, will be used to create jobs and provide support for families with children.
The finance ministry said it wants to boost the tax rate on companies whose net profit exceeds 200 billion won, from the current 22% to 25% in 2018. The National Assembly must approve the change.
According to the ministry, 129 companies will be affected by the rate change, based on their 2016 filings.
"We will optimize tax burdens mainly for big corporations which are relatively in better situations," said the ministry in a statement. "With the additional revenues, we will support the underprivileged and marginalized companies, contributing to social integration and economic cooperation."
The liberal government under President Moon Jae-in also seeks to levy a 42% income tax on individuals earning more than 500 million won, up from 40%. For those earning between 300 million won and 500 million won, the rate will rise to 40%, up from 38%.
The proposal for revising the tax code comes three months after Moon won the presidential election in May. The president had pledged to create a fair and equal society.
Moon, a former human rights lawyer, rode a wave of public discontent with the government to capture the presidency. Public outcry over alleged favors granted to corporate leaders, including Samsung Electronics Vice Chairman Lee Jae-yong, pressured lawmakers to impeach then-President Park Geun-hye.
Privately, business leaders may not be happy with the tax hikes. But they did not object publicly during their dinner with Moon last week at the Blue House, the country's official presidential residence. Instead, they promised to cooperate with the new government in creating jobs and helping contractors.
Governments around the world have been under pressure to cut corporate taxes due to fierce competition over luring investments from multinational corporations. How Moon's tax hike affects corporate behavior going forward remains to be seen.
Economists say the new tax rates signal the start of the government's plan to hit other taxpayers with similar hikes.
"Considering the government wants to provide more welfare services, I don't think the additional tax revenues are enough to cover the costs," said Oh Suk-tae, an economist at Societe Generale. "I believe that the government will release more plans later."