Samsung Electronics is set to be hit with a significant corporate tax increase next year, with the Seoul-based company being expected to pay an additional $388 million (425.3 billion won) based on the latest changes to South Korea’s legal framework regulating corporate income. The law will increase the top marginal corporate income tax rate to 25 percent, three percentage points up compared to the system that’s currently in force. The move is understood to be the Korean government’s attempt to add extra funds to the state budget, with recent estimates suggesting the country will be able to raise approximately $1.2 billion in additional corporate taxes in 2018 as a direct result of the law change.
As per the National Assembly Budget Office’s initiative, the extra taxes will hit Samsung the hardest, with the second most heavily affected entity being Hyundai Motor whose annual tax bill is projected to increase around $165 million. Semiconductor company SK Hynix which manufactures various chips for Android smartphones and tablets will have over $112 million of additional tax burden placed on it as of next year due to the law change, according to initial estimates. The aforementioned figures are all based on existing tax deductions issued to Korean chaebols based on their research and development efforts, as well as various investments, meaning the total tax rate increase that’s expected next year could be even higher. While less liberal tax deduction practices haven’t yet been enacted by Seoul, some industry watchers project the government to raise approximately $2.1 billion of additional tax from conglomerates in 2018. With Samsung being one of the largest investors and innovators in the Far Eastern country, its total tax burden may rise by as much as $0.5 billion starting next year.
The consequences of the move remain unclear as analysts are still divided on the matter, though most agree increased tax burdens may discourage some investments in the short term. Samsung is unlikely to significantly revamp its operations in response to the change, though the new regulatory framework is expected to be discussed at the company’s upcoming global strategy meetings scheduled to take place in the second half of December. The world’s largest phone maker has yet to issue an official comment on the matter.
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