The government is set to address the issue of rapidly diminishing tax benefits for small businesses transitioning to mid-sized enterprises, a problem often referred to as the 'growth ladder disruption.' The plan aims to redesign the tax, financial, and regulatory support systems to facilitate the advancement of promising small businesses into mid-sized firms.
On July 14, during a Cabinet meeting chaired by President Lee Jae-myung at the Blue House, the government reported on its economic growth strategy for the second half of 2026.
This strategy includes measures to overcome polarization by supporting small businesses, micro-enterprises, and vulnerable groups. The government has decided to shift its approach from merely protecting small businesses to promoting investment and growth.
To achieve this, the government will reduce the abrupt decrease in tax benefits that occurs when small businesses grow into mid-sized companies. Currently, as businesses expand, they face a sudden reduction in key tax supports, such as special tax deductions for small businesses, which has been identified as a deterrent to growth.
To mitigate this, the government will introduce a 'gradual reduction zone' where the special tax deductions for small businesses will decrease incrementally as they transition to mid-sized status. Additionally, measures will be implemented to lessen the reduction in tax credits for production costs related to video and webtoon content as companies grow.
Min Kyung-seol, head of the Innovation Growth Office at the Ministry of Finance, explained in a pre-briefing, “We will not simply cut off support when a business graduates from being a small enterprise. Instead, we will focus on providing more support to promising companies.”
The financial support system will also be restructured according to the stages of business growth. The government plans to categorize businesses into types such as high-growth, stable growth, stagnation, and decline, and develop tailored support measures for each category. Special emphasis will be placed on supporting companies with growth potential.
To this end, a pilot program will be conducted this year, with plans to expand the approach to a comprehensive inter-agency support program for small businesses starting in 2027. The goal is to prioritize 'growth promotion' over mere 'maintenance.'
The government will also expand the 'Jump-Up Program' aimed at nurturing promising companies. This program will identify high-potential businesses and provide phased support for technology development, commercialization, international expansion, and financial assistance.
Regulations based on company size will undergo a thorough review. The government will examine whether new regulations imposed on small businesses as they grow hinder investment and job creation, and will seek ways to improve these regulations.
To strengthen startup support, the government will expand the 'Everyone's Startup' initiative and enhance the utilization of intellectual property (IP) to assist early-stage companies in commercializing their products. Support for youth entrepreneurship will also be pursued to create jobs for young people and foster new growth industries.
For micro-enterprises, the government will focus on enhancing competitiveness and providing support for overcoming crises. It will assist promising micro-enterprises with lifestyle-related research and development (R&D) to improve products and services and strengthen brand competitiveness, while also enhancing support for those at risk of closure.
Improvements to the Earned Income Tax Credit (EITC) system will be pursued to increase work incentives for low-income earners. The government plans to rationalize the income requirements for the EITC to reduce welfare gaps and expand support for working low-income individuals.
To address labor market disparities, the government will promote the protection of workers' rights and improve employment and working hour systems, while seeking reasonable reforms based on surveys of temporary workers.
* This article has been translated by AI.
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