Among foreign-based companies operating in South Korea, almost half defaulted on their corporate tax payments last year, with two of them logging more than 5 trillion won ($4.36 billion) in annual sales, a ruling party lawmaker said Monday.

According to data submitted by the National Tax Service to Rep. Kim Soo-heung of the ruling Democratic Party of Korea, 46.6 percent or 4,956 out of the 10,630 registered foreign companies here did not pay corporate taxes at all in 2019. The figure was up 265 from a year earlier.

Two of those companies logged more than 5 trillion won in annual sales volume, while seven achieved between 1 trillion won and 5 trillion won.

Under bilateral taxation treaties with different countries, Korea’s tax agency may only impose tax on revenues that are classified as “domestic.” Should a foreign-based company transfer its earnings to its overseas headquarters, or to any other state with a lower corporate tax rate, the corresponding amount is to be excluded when its Korean taxes are assessed.

“Many foreign businesses are abusing this rule and transferring all of their earnings to their headquarters, in a tax-dodging action,” said Rep. Kim, calling for enhanced government oversight.

Also, the country needs to reinforce taxation on high-income corporate bodies and asset-rich individuals, and also needs to increase their social security contributions in response to increasing demand, another ruling party lawmaker said.

“(Over recent years), the tax on individual and corporate income has increased in proportion, while consumption tax has decreased in proportion,” said Rep. Yang Kyung-sook, a member of the parliamentary finance committee.

According to data from the Organization for Economic Cooperation and Development, the country’s total tax revenue as of end-2018 came to 506.48 trillion won, up 38.62 percent or 1.4 trillion won from four years earlier.

During the same period, the tax on corporate income showed the steepest increase -- to 79.72 trillion won from 47 trillion won. The proportion of corporate tax revenue to total tax revenue rose to 15.73 percent, bringing Korea’s ranking to third among the 36 OECD member states.

The tax on individual income also expanded during the same period -- to 93.27 trillion won from 59.46 trillion won, with the ratio climbing to 18.24 percent from 16.27 percent.

The ratio of consumption tax, however, shrank to 26.27 percent from 29.95 percent, with the OECD ranking also slipping to 27th from 21st among the 36 member states, though the overall amount increased slightly.

Social security contributions also slipped to 25.4 percent from 26.87 percent in proportion.

“As of 2018, Korea saw a relatively low level of tax burden rate among peer economies but its income taxation ratio was relatively high,” said Rep. Yang.

“It is important to apply stricter tax rate rules on high-income corporate bodies and high-value assets (owned by individuals) for the sake of fair taxation.”

By Bae Hyun-jung (tellme@heraldcorp.com)