In our tribute to top 25 GDP nations of the world, South Korea has shown a remarkable story to be written in golden letters. Like any Asian country, this lateral part of the century 2000 along with the next one naturally belongs to this quality obsessed nation. Luckily, I came across its taxation in a book published by their government by over 345 pages which will enable me to write in three parts:

  • Korea taxation – evolution over the decades
  • Korea taxation – individual tax
  • Korea taxation – corporation tax and other details.

The main purpose of covering the Korean taxation is purely because of its success on the world economy, it possessiveness over India for its growth/growth of India when it was not a favored one, and its projected vision to become world leader in all high tech industries.

The reference to this write-up is given at the end of this article.

Pages 9 – 37 of the publication of Ministry of Economy and Finance KOREA, has narrated its glorious evolution of its tax system.

Before we venture to know the history of Korean taxation, it is essential to learn the authorities involved with its taxation, at both local and national levels, the types of tax systems etc.

Our learning journey begins.

Tax System in Korea

1. Taxes in Korea

2. Tax Laws and Regulations

3. Government Authorities Concerned

4. A Brief History of Taxation in Korea

To be specific, taxes in Korea comprise national and local taxes. National taxes are divided into internal taxes, customs duties, and three earmarked taxes; the local taxes include province taxes and city & county taxes.

Let me venture into national taxes.

National Taxes

Internal Taxes

Income Tax, Corporation Tax, Inheritance Tax, Gift Tax, Comprehensive real estate holding Tax, Value-added Tax, Individual Consumption Tax, Liquor Tax, Stamp Tax, Securities Transaction Tax,

Customs Duties

Earmarked Taxes:  Transportation- Energy· Environment Tax, Education Tax, Special Tax for Rural Development.

Local Taxes

Province Taxes

Ordinary Taxes

Acquisition Tax, Registration and License Tax, Leisure Tax, Local Consumption Tax,

Earmarked Taxes

Community Resource and Facility Tax

Local Education Tax

City & County Taxes

Ordinary Taxes

Inhabitant Tax, Property Tax, Automobile Tax, Local Income Tax, Tobacco Consumption Tax.

Let us assimilate the above information.

So, we have the national internal taxes consisting of direct and indirect taxes and each consists of five internal taxes.

There are eleven local taxes, and they are divided into province and city & county taxes. At the province level, there are four ordinary taxes and two earmarked taxes. At the city & county level, there are five ordinary taxes. In the six large specially designated cities that are run as autonomous local administrative units.

What is the role of global and schedular taxation?

Under income tax law, income earned by residents and non-residents are subjected to above taxes.

The details of laws of national and local taxes are given on pages 11, 12, and 13 of the publication being referred often.

The government authorities involved in taxation are a).  Office of Tax and Customs, Ministry of Economy and Finance, b. Tax Tribunal, and c. national tax service.

It is time to learn the brief history of evolution of taxation in the above glorious country.

1. The Infant period of a modern Korean tax system (1948-1953)

2. The period of postwar reconstruction (1954-1961)

3. The period of economic development (1962-1967)

4. The period of sustained economic growth (1968-1973)

5. The period of economic downturn and growth (1974-1979)

6. The period of recession, recovery, stabilization and liberalization (1980-1989)

7. The period of 1990-1997

8. The period of financial crisis (1998-1999)

9. The period of 2000~2010

10. The period of2011~2014

11. Highlights of tax reform in 2015

12. Highlights of tax reform in 2016

13. Highlights of tax reform in 2017

The purpose of writing this article is to celebrate the evolution of Korean taxation, its infirmities, its glorious moments, and a time for introspection. Yes, even an economic powerhouse which has been shaping the earth with its most advanced technological advances has observed its evolution in all spheres with often unpredictable consequences, some of them pleasant or otherwise. Yes, nothing deterred South Korea in its quest for growth and equitable distribution of wealth while not discouraging its industries to widen their wings around the globe. Consistently, it has been supporting our nation and is one of the largest trading partners over the decades.

Korean taxation history in its entire glory

The infant period

Though pages 14-37 engulf the whole history, let me anecdote in phases.

Formation of the government of the Republic of Korea necessitated the following gradual development of taxation:

  • 1948 initiated formation of the government followed by Tax Law Committee establishing modern tax laws. Few fundamental laws like Income tax law, corporation law, and liquor law were enacted. A little later, 9 more laws including inheritance law were added.
  • Korean war during 1950-53 forced enhancement in collection of revenues. The end of the war coincided with the publication of the Report and Recommendation for the Korean Tax System by H.P. Wald, on Aug. 25, 1953.

Postwar reconstruction (1954-1961)

In April 1954, the Special Measure for Taxation and the Temporary Tax Revenue Expansion Law were abolished as recommended by Wald’s Report on reforms of the tax system. Schedular slab rates, and globular rates on progressive basis got introduced.

The Liberal Party initiated a tax reform for the Three-Year Economic Development Plan in 1959 upon the recommendation of a tax consultant group headed by Dr. Hall. As a result, most tax rates were put on a lower scale and the tax administration was streamlined. Tax exemptions and deductions were designed to promote exports and capital accumulation were increased substantially.

It is very interesting to know that South Korea which blossomed into an export powerhouse could visualize exports as the route for growth and prosperity within 11 years of its establishment. This initiated export led model of economies around the world embedded with global economy playing its own role as the spoiler.

Period of economic development (1962-1967)

As the name revealed, these 5 years ushered in the following important growth in tax money.

General tax reform was implemented in support of the first five-year economic development plan. It was meant to simplify the tax administration, collect more efficient revenue collection, and increase in savings and investment. Improvements were made in 13 laws. During the following year, the Adjustment Law for National and Local Tax and the National Tax Appellate Application Law were introduced which resulted in increase of tax revenues.

In 1967, twelve of the nineteen existing tax laws were modified extensively, and the Real Estate Speculation Control Tax Law was implemented. For corporations with outstanding shares, the tax rate was reduced with an objective of mobilizing domestic capital.

With the adoption of global progressive tax system, tax on large income earners showed an increasing turn.

Sustained economic growth (1968-1973) and resultant effects on tax system

The following improvements were noticed:

  • Abolition of field audits of corporations with outstanding shares, increasing of tax penalties, and tax credits for voluntary returns and payments.
  • In 1969, change of laws enabled objective evidence enabled better tax assessment procedures. In 1969 six laws were modified to enable this change. With the improvements in laws, corporations could repay the loans over a period of 5 years after a gap of 3 years.

International upheaval on Korean economy- Downturn and growth (1974-79)

Sudden fluctuations in international trade, petroleum products and increase in raw materials cost affected the economy.

Several temporary fiscal measures (to stay in effect for up to one year) were adopted in the “Presidential Emergency Measure for Stabilization of National Life” in January of 1974. In December 1974, the government undertook comprehensive reform measures of the tax system primarily to improve income distribution. Many personal exemptions were introduced to help low-income group population.

In July 1975, introduction of Defense Tax Law to help augment defense expenditure, addition of value added tax, and individual consumption tax in 1976-77 transformed the tax scene. 18 taxes got amended to improve income tax and inheritance tax structure.

Now is the time to pass through recession.

Period of recession, recovery, stabilization, and liberalization (1980-1989)

History reverberates with both positive and negative features of economy subjected to varied tunes of time.

Stress was made to help new technological units with liberal investment credit, additional depreciation, and tax incentives for newly established small and medium-sized enterprises (SMEs), which included the income or corporation tax exemption for 4 years with 50% tax reduction for the subsequent 2 years for SMEs newly established in an agricultural or fishing district or those related to technology-intensive business helped the economy to face uncertain times.

Yes, more tax reforms and ahead (1990-1997)

Historical tax reforms for ebbing the economy were as narrated below :

1. Burden of wage earners reduced by introducing more deductions, and upwardly adjusted tax credit limits.

2. Defense Tax was repealed in 1991.

3. In 1993, the difference between recognizing profits and losses in both business and tax accounting was adjusted.

4. The self-assessment system for individual income taxes was introduced in 1996. For learning pleasure, some tax rates: 1994- Income≤100 million won: 18% (19.35%); Income>100 million won: 32% (34.40%) (tax rate) for private corporations; 1995- tax rate reduced to 30% from 32% quoted above.

5. Kindly note the sensibility of the tax authorities to visualize reduction in tax for big private corporations so that the growth would enable the economy to scale up and reach the sky, if possible.

Financial crisis, and the need to fix it (1998-1999)

Yes, Korean tax regime, one of the strongest in terms of capability to face roller coaster changes of economic crisis in the world where it opted to play a significant role, faced brazenly the formidable tax crisis in above period with the following immediate actions:

Economic reform measures undertaken-

i) Tax exemptions or reductions for asset transactions for the purpose of corporate and financial restructuring under 3 taxes: on stock options elected by employees of venture capital companies

ii) Individual consumption tax, automobile tax, and capital gains tax were reduced

iii) Abolition of VAT exemptions on services supplied by professional service providers

iv) Imposing VAT on cigarettes in addition to existing local tax, and increase three times of excise tax on petroleum

v) A 20% withholding tax was imposed on interest income as of January 1, 1998 which went up to 22% beginning October 1, 1998).

Let us come to the current decades of 2000.

2000 – 2010 current reforms

Pages 23-24 contain year wise reforms till 2007.

Year 2009 heralded the current developments

  • Increase in tax base for tax rate
  • Deduction of educational and medical costs for self employed
  • The sunset clause for bio-diesel tax deduction which was extended to December 31, 2010 to support alternative energy. One of the top auto makers of the world with petroleum products opted for alternative energy which would form basis for its current energy needs in 2021.
  • income tax rate cut by 2%p in each tax bracket, and the personal deduction amount per person being increased to 1.5 million from 1 million won, and tax refunds of up to 240,000 won per year for workers and the self- employed.

Tax reform in 2011-2014 are covered under the pages 27-35.

Let us jump to 2017 for the developments thereafter.

Year 2017 with its mind-boggling changes in tax reforms

As per international trend of shifting manufacturing bases to other places, South Korean manufacturers shifted their attention abroad resulting in huge unemployment, and the huge gap between SME units and large corporations forced the government to think outside the box and resulted in

  • With the establishment of “Tax Credit for Enterprises Increasing Job Creation,” tax reduction for enterprises increasing the number of jobs was expanded while the applicable period of tax credit for social insurance premiums paid by SMEs boosting jobs was equally extended
  • For “enhancement of income redistribution and tax fairness,” tax burdens on high income earners were got raised, whereas those on middle- and working-class people and small- scale business owners were relieved to support a virtuous cycle of distribution and growth.
  • “A stable tax revenue base,” was also introduced.

Now to live with 2021 onwards

  • Based on December 2020 reforms, changes were proposed to face COVID 19 with emphasis on more corporate investment, encourage consumer spending, and introduction of the investment tax credit overhauls with a negative list system whereby investment tax credits should be generally available for all types of business-purpose tangible assets with some exceptions.
  • Another significant change extends the carry forward period of unused tax credits to 10 years from 5 years under the tax incentive law.
  • Measures were introduced to have an effective collaboration between large corporations and small- and medium-sized enterprises (SMEs) and strengthen fair taxation.


South Korean economy with GDP rate of 2.2% in 2019(for obvious reasons, I do believe the happening of 2020/21 are due to global pandemic and unexpected human devastation) has witnessed an unbelievable course of economic events and has risen from a non- entity in 1960s to the most powerful high tech and large manufacturing power- house of the world as on date. Ever perplexed by its myriad high- tech products, my above article partly explains its ‘never say die approach’ and proves again and again the entrepreneurial qualities of its people.

True to my research, taxation paved my way for understanding South Korea.

Yes, I do agree that my article contains extensive quotations from the following publication.

Reference :

Ministry of Economy and Finance REPUBLIC OF KOREA.


Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional

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A banker with 27 years of experience, a CPA from USA with specialization in US taxation, individual, partnership, S corporation or LLC taxation etc View Full Profile

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