Tax break for small restaurants extended 2 years under government reform plan

A preferential value-added tax deduction rate for individually owned restaurants with annual sales of up to 400 million won ($282,000) will be extended for two more years through the end of 2028.

The Ministry of Agriculture, Food and Rural Affairs announced Sunday that the government's 2026 tax reform plan includes a provision extending the preferential deduction rate under the deemed purchase tax credit system for restaurant operators through Dec. 31, 2028.

The deemed purchase tax credit allows restaurants and similar businesses that use tax-exempt agricultural products as raw ingredients to claim a set amount as deductible input tax — reducing their VAT liability — even when no actual input tax was paid.

Under the revision, the preferential deduction rate of 9/109 applied to individually owned restaurants with a taxable base of up to 200 million won — equivalent to annual sales of up to 400 million won — will remain in place through the end of 2028. The rate had been set to expire at the end of this year. The standard deduction rate is 8/108.

The ministry said it expects the measure to provide relief to the food service industry, which has faced growing financial pressure from rising raw material costs, labor costs and utility bills. It particularly projected that reducing the tax burden on small restaurants would have a positive effect on stabilizing dining-out prices.

The tax reform plan will go through a public notice period through Aug. 20 before being submitted to the National Assembly in September. It is set to be finalized after a plenary vote in December.