Research Institute of Economy, Trade and Industry's latest analysis reveals that the "Growth-Oriented Corporate Tax Reform" implemented from 2014-2018 reduced the statutory effective tax rate from 39.54% to 29.74% for large corporations and from 40.87% to 33.59% for small and medium enterprises. The reform's distinctive feature was the simultaneous expansion of pro forma standard taxation based on payroll and capital for large corporations alongside tax rate reductions.
The analysis evaluated the reform's impact using the "forward-looking effective tax rate," which indicates the tax rate on profits from new investment projects. Results showed that while highly productive and larger companies benefited from tax reductions, companies with high debt ratios (0.70% tax rate increase per 1% debt ratio increase) and high labor share ratios (0.25% tax rate increase per 1% labor share increase) faced tax increases.
Regarding impacts on corporate behavior, companies with larger tax reductions showed increases in capital investment and employment. Small and medium enterprises, exempt from pro forma standard taxation, experienced larger investment and employment growth effects than large corporations. For large corporations, the expansion of pro forma standard taxation partially offset the tax rate reduction effects, with taxation on payroll potentially constraining wage increases.
The Research Institute of Economy, Trade and Industry notes that while the corporate tax reform demonstrated certain effectiveness, the expansion of pro forma standard taxation may constrain wage increases, providing important insights for future tax system design considerations.