Tax breaks for top conglomerates surged 81.8% last year, dwarfing gains for small firms

Tax breaks granted to South Korea's largest conglomerates jumped by nearly 2 trillion won in a single year, surging more than 80%, while relief for small and medium-sized enterprises grew by just over 4%, according to government data released Sunday.

The figures come from the "2025 Tax Expenditure Settlement Report" that the office of People Power Party lawmaker Lee Yang-su obtained from the Ministry of Economy and Finance. The report shows that cross-shareholding restricted business groups — the country's largest conglomerates — received 4.27 trillion won ($3.06 billion) in national tax reductions last year, up 81.8% from 2.35 trillion won in 2024.

Cross-shareholding restricted business groups are conglomerates whose total assets equal at least 0.5% of GDP, commonly referred to as top-tier large business groups. As of this year, 47 such groups exist.

These conglomerates accounted for 16.0% of total corporate tax reductions — 26.76 trillion won — last year, up 6.2 percentage points from the previous year.

Tax expenditures are revenue the government forgoes through deductions, credits and exemptions designed to advance various policy goals, and in effect function similarly to direct fiscal spending.

By contrast, tax reductions for small and medium-sized enterprises reached 18.83 trillion won last year, a gain of just 4.3%. Their share of total corporate tax reductions fell from 75.1% to 70.4%.

Total corporate tax reductions grew by 2.7 trillion won from the previous year. Of that increase, the top conglomerates accounted for 71.1% and small and medium-sized enterprises for 28.4%.

A Ministry of Economy and Finance official attributed the disparity to heavy investment activity among the top conglomerates. "R&D personnel expense tax credits and the integrated investment tax credit are used more by large companies," the official said. "It appears this outcome stems from the fact that conglomerate-affiliated firms are investing heavily."

The R&D personnel expense tax credit reached 4.15 trillion won last year, up 1.19 trillion won from the previous year. The integrated investment tax credit also rose to 2.49 trillion won, an increase of 719.4 billion won.

Both credits reflect carryover deductions applied when companies filed their corporate tax returns last year following improved earnings in 2024, as well as the expanded scope of new-growth, source technology and national strategic technology eligible for the credits.

The largest single tax expenditure item last year, as in 2024, was the special income deduction and tax credit for insurance premiums, which grew 5.1% to 7.25 trillion won.

The pension insurance premium deduction, ranked third in 2024, climbed 7.2% to 4.76 trillion won to take second place, while the earned income tax credit slipped to third after falling 1.6% to 4.64 trillion won.

Fourth place went to the income deduction for credit card and other spending — up from 4.09 trillion won to 4.32 trillion won — and fifth place to the integrated employment tax credit, which rose from 3.81 trillion won to 4.03 trillion won, with both items holding their respective rankings.

The composition of the top five items was unchanged for the second consecutive year, with the earned income tax credit the only one to post a decline.

Among individual items, the special tax treatment for gold bullion transactions on the spot gold market — aimed at bringing gold trading into the formal economy — jumped roughly 13.9-fold, from 6.1 billion won to 85 billion won.

The VAT refund scheme for cosmetic surgery procedures received by foreign tourists also surged 125.2%, from 77.8 billion won to 175.2 billion won.

The special tax treatment for investments in cooperatives fell 124.9 billion won to 911 billion won, as lower interest rates reduced interest income. The tax exemption for tax-free comprehensive savings accounts also declined 109.5 billion won to 799.6 billion won.

Total national tax reductions last year came to 76.11 trillion won, up 5.59 trillion won from the previous year. The national tax reduction rate edged down 0.2 percentage points to 15.9%, though it still exceeded the statutory ceiling of 15.5% by 0.4 percentage points.

The government reported to the National Assembly that this year's total tax reductions are projected at 80.53 trillion won, with a reduction rate of 16.1% — within the statutory ceiling of 16.4%.

The Ministry of Economy and Finance announced a 2026 tax reform plan that would overhaul 115 of the 241 total tax expenditure items — roughly half — to achieve a combined reduction of 2.5 trillion won.

Under an amendment to the Restriction of Special Taxation Act, the ministry submitted the tax expenditure settlement report to the National Assembly on Aug. 18 for the first time.

Until last year, the ministry submitted a tax expenditure "budget" document to the Assembly each September alongside the following year's budget proposal. Starting this year, the system changed to require earlier submission of a settlement report.