Tax Support for the Service Industry in Korea

Tax support is a type of industrial policy instrument used to reallocate resources and help achieve economic policy goals. Unlike other policy instruments such as subsidies and financial support, tax policy is an indirect support tool that has the same effect as ex post incentive payments in inducing specific actions by economic agents because it lowers the tax burden to be paid after the economic agents take those actions. It is for this reason that tax support is occasionally called a “hidden subsidy”. There are various terms used to refer to tax support, such as tax expenditure, tax preferences, tax incentives, and so on, often dependent on the context in which these tools are applied. In Korea, tax support is provided in the form of tax reductions or exemptions, non-taxation, deductions to taxable income, tax credits, preferential tax rates, and tax deferrals, according to the provisions of the special taxation. This paper explores tax support schemes for the service industry in Korea over the past decade and describes some pressing issues for tax support policy for the service industry.