[Interview] Chairman of the Gyeongnam Chamber of Commerce & Industry: “You have to live in the local area so that the metropolitan area can also breathe… Different corporate tax rates are needed.”

Choi Jae-ho, chairman of the Gyeongnam Chamber of Commerce and Industry (Changwon Chamber of Commerce and Industry), said, “Local companies are already competing on a tilted playing field,” and added, “For balanced regional development, corporate tax must be differentially applied to small and medium-sized companies outside the metropolitan area.”

In an interview with Yonhap News held at the Changwon Chamber of Commerce on the 14th, Chairman Choi said, "If local regions revive and companies and people are evenly divided, the metropolitan area will also be able to breathe. Differential application of corporate tax in non-metropolitan areas is not just for local areas, but is a way for the entire country to live together."

Chairman Choi, who began his term as the 5th president of the Changwon Chamber of Commerce in December 2023, has also served as president of the Gyeongnam Chamber of Commerce (members of 10 cities and counties in Gyeongnam as of this year) since the following year, raising his voice for balanced regional development.

In particular, the Non-metropolitan Area Chamber of Commerce Council, comprised of five regional regions including Yeongnam and Honam, was launched for the first time in 2024, and is currently focusing on passing a bill for differential application of corporate tax and earned income tax in non-metropolitan areas.

The following is a Q&A with Chairman Choi.

-- What is the background to the need for tax system reform in non-metropolitan areas?

▲ More than half of the population is concentrated in the metropolitan area, which accounts for only 12% of the country, and corporate headquarters and jobs are also concentrated there. Every year, local youth leave for the metropolitan area in search of jobs, and as young people leave, companies are unable to find people, and as companies leave, jobs decrease again, continuing the vicious cycle.

Each successive government called for balanced development, but failed to change the trend. Relocating public institutions or supporting one-time projects alone is not a clear reason for companies to choose a local area.

We need to create a structure in which being in a local area is beneficial to companies and workers. The most certain and direct means of making this possible is taxes.

The idea is to differentially apply corporate tax to companies and income tax to workers so that companies and people can choose their local region.

- What kind of activities has the Non-metropolitan Chamber of Commerce, which was launched at the end of 2024, been doing so far?

▲ Recognizing that the reform of the tax system in the non-metropolitan area is a problem that cannot be solved through the voices of only Changwon or Gyeongnam, the Changwon Chamber of Commerce and Industry took the lead and launched the Non-metropolitan Area Chamber of Commerce Association together with the Gyeongnam, Gyeongbuk, Jeonnam, and Jeonbuk Chambers of Commerce in December 2024.

It is significant that the economic circles of Yeongnam and Honam joined hands with one goal: balanced regional development. This year, the solidarity has grown to include more than 30 tops from five regions, including North Chungcheong Province.

The Non-metropolitan Chamber of Commerce has as its official agenda the differential application of corporate tax and earned income tax in non-metropolitan areas.

Professors from Gyeongsang National University (Gyeongnam) and Chosun University (Gwangju, Jeollanam-do) conducted research services to carefully prepare the policy basis for tax reform, and held a debate with ruling and opposition party lawmakers and local businessmen to form a consensus on the need for legislation.

Early this year, 42 councils from non-metropolitan areas across the country came together and sent a proposal to the National Assembly urging the introduction of a tax reform bill for non-metropolitan areas, and in February, amendments to the Corporate Tax Act and the Restriction of Special Taxation Act were submitted to the National Assembly jointly proposed by lawmakers from the ruling and opposition parties. The bill was submitted to the relevant standing committee last April and is currently being reviewed by the Tax Subcommittee.

-- The main contents of the tax reform bill.

▲ It contains a proposal to lower the corporate tax rate of small and medium-sized companies in non-metropolitan areas by 3 percentage points for each tax base section, and to reduce the earned income tax of workers employed at companies in non-metropolitan areas by half (limit of 5 million won per year).

Currently, there is a system that provides tax reductions when companies in the metropolitan area move their factories or headquarters to regional areas, but actual relocations are not active and the reduction performance has decreased by about a quarter in the past three years.

The bigger problem is that this system is only tailored to ‘relocating companies’. Local businesses and local startups that have long created local jobs and contributed to the local community were excluded from the target, and the effect of encouraging workers to settle in local areas was insufficient.

If there is a difference in the tax rate itself, the benefits can be distributed evenly to local companies and start-ups. If this bill is passed, it can give hope to local businesses, people who work and live in the area.

According to estimates by the National Assembly Budget Office, the annual average corporate tax reduction is about 1.8 trillion won, which is 2.6% of the total corporate tax and about 8% of this year's balanced regional development budget, so it is easily affordable.

If local regions revive and businesses and people are evenly divided, the metropolitan area will also be able to breathe. Differential application of corporate tax in non-metropolitan areas is not just for local areas, but is a way for the entire country to live together.

Israel increased employment and income by applying a low corporate tax rate to underdeveloped regions, and Switzerland also has a case of varying tax rates by region.

-- What are the expected effects of passing the bill?

▲ If the corporate tax burden is reduced, there will be room to invest in new facilities and technology and hire more people. If there is a clear advantage of reducing the tax burden of starting a business in a local region, the number of companies taking their first steps in the region will increase. If the actual income of young people increases due to the earned income tax reduction, local companies can become sufficiently competitive workplaces.

Given that this bill was proposed jointly by lawmakers from both the ruling and opposition parties, I believe that political interests are surpassed. Since the government has also promoted balanced growth as a national survival strategy, I believe there is no major disagreement about the direction. However, as there are concerns about tax revenue, we will focus on persuading people in this area.

Together with the non-metropolitan area council, we will continue to make it known that tax reform leads to investment, employment, and local consumption, ultimately resulting in greater economic effects, so that this bill can come to fruition.