[THE INVESTOR] The South Korean government seeks to boost the services sector through tax breaks in an effort to increase jobs amid high youth unemployment.

The Finance Ministry said Tuesday that it seeks to create 250,000 jobs through such fiscal measures aimed at increasing productivity in the services industry. 

The government aims to uplift the value of its services sector on par with the average of the Organization for Economic Cooperation and Development in five years. This is also in line with efforts to boost Korean exports from services to $150 billion.



Finance Minister Yoo Il-ho urged lawmakers to swiftly pass relevant revisions to boost the sector and increase jobs in the face of growing economic uncertainties the world over.

“In order to develop the services industry, the government needs to make legal revisions. We ask for the National Assembly’s full cooperation,” Finance Minister Yoo said in an economic-related ministerial meeting Tuesday.

“Sentiment in consumption and investment is not showing signs of improvement, despite a rebound in production in May and a lower decrease rate of exports in June. Uncertainties persist following Brexit and corporate restructuring.”

The Finance Ministry said that it will seek to develop the services industry such that its employment in the sector accounts for 73 percent of the total in five years, currently from 70 percent. It will also seek to boost the industry’s value to account for about 65 percent of total gross value added, from 60 percent

Employment in the services sector accounts for over 72 percent in the OECD, as well as 71.3 percent of value added in the OECD.

The government is looking to develop the industry especially in the fields of health care, tourism, content production, education, finance, software and logistics or transportation to create 250,000 jobs by narrowing the gap between services and manufacturing.

It will offer corporate and income tax deductions of up to 30 percent on research and development spending and employee wages for small and medium-size enterprises.

Should SMEs increase or maintain their workforce, the government will further offer tax deductions of up to 5 percent on their expenditure for employment, and up to 3 percent on investment.

Also, the government will deploy its state-owned policy banks such as Korea Development Bank to increase their financial support to 54 trillion won ($46.7 billion) by 2020, from the current 39 trillion won, for SMEs in the services sector.

The revision is expected to allow conglomerates to participate in public projects to develop software technology for the Internet of Things and cloud computing, while also encouraging the private sector to develop and deploy drones for logistics services next year.

To that end, the government will increase its R&D spending for the development of services infrastructure to account for 6 percent of the total by 2021, from 3 percent this year.

Although the services sector has created more jobs than the manufacturing sector over the years, its productivity falls well behind the OECD average and local manufacturing, according to the Finance Ministry.

By Park Hyong-ki (hkp@heraldcorp.com)