The Park Geun-hye administration is proposing a tax revision, putting pressure on large conglomerates to use their cash reserves on investments, paying out dividends and raising the wages of their employees.
Instead of hoarding that cash, the government would like to see it flow into households, as a way to boost domestic consumption.
Under the government's proposal for a tax revision that goes into effect next year, the government will provide a 5- to 10-percent tax deduction for companies that raise employee salaries, with extra incentives for firms that take additional measures.
The dividend tax will be cut to 9 percent from the current 14 percent if dividend payouts meets certain targets.
Companies with paid-in capital exceeding 48 million U.S. dollars will have to pay a 10 percent tax on their total cash reserves for three years if they don't meet one of the two targets: spend 60 to 80 percent of their net profit on investments, salary increases and dividends or use 20 to 40 percent of their profits for salary increases and dividends.
However, the idea of taxing the internal reserves of companies has not been met with kindly by the business community.
They contend that many of the businesses have been setting aside earnings for a rainy day.
Even if companies increase their dividends to avoid taxes on their cash reserves, they say the impact would not meet expectations for increasing domestic investment and consumption.
Ji Myung-kil, Arirang News.