Tax, labor data to sharpen eligibility screening

Village, self-reliance firms and medical corporations gain SME status

Priority procurement threshold raised to 350 million won

A vendor works at Seomun Market in Daegu on Monday, the day before the Chuseok holiday. [Yonhap]
A vendor works at Seomun Market in Daegu on Monday, the day before the Chuseok holiday. [Yonhap]

South Korea will begin factoring in business income, wage income and operating costs — not just sales figures — when determining eligibility for small business support.

The Ministry of SMEs and Startups said Tuesday that the Cabinet approved amendments to the Framework Act on Small Enterprises, the Framework Act on Small and Medium Enterprises, and the Act on Promotion of Purchase of Small and Medium Enterprise Products and Support for Development of Their Markets.

Under the current system, eligibility for small business support is assessed primarily on a business operator's sales revenue and number of regular employees. Critics have noted that this approach allows a single owner running multiple unmanned stores to collect support payments for each location, and lets salaried workers with substantial wage income qualify for assistance simply by operating a side business such as an online shop.

The amended Framework Act on Small Enterprises establishes a legal basis for the ministry to request data from the National Tax Service and the Ministry of Employment and Labor. The ministry will be able to obtain not only sales figures but also business income, wage income, cost of goods sold, and selling and administrative expenses from the tax agency.

The ministry said this will allow it to assess the true scale of a small business operator — taking into account whether they run multiple workplaces and whether they earn separate wage income — so that genuinely low-income micro-operators can be identified more accurately. The ministry also plans to link data scattered across multiple agencies to reduce duplicate support payments that can arise when assistance is structured around individual business registrations.

Village enterprises, self-reliance enterprises and medical corporations will also be newly eligible for small and medium-sized enterprise support. The Cabinet approved a promulgation of the amended Framework Act on Small and Medium Enterprises that brings these entities within the definition of SMEs.

The existing law already recognized certain social enterprises, cooperatives, social cooperatives and consumer cooperatives as SMEs, provided they met specified requirements. Village enterprises and self-reliance enterprises, which pursue similar social values, had been excluded, limiting their access to SME support programs.

Village enterprises are community-led businesses that draw on local resources to address local challenges and create jobs and income. Self-reliance enterprises are set up and operated by basic livelihood recipients and near-poor households to achieve economic independence and generate employment.

Medical corporations had also been excluded on the grounds that they are nonprofit entities, even though private clinics and some nonprofit medical institutions organized as consumer or social cooperatives were already recognized as SMEs — an inconsistency that critics said raised fairness concerns.

Under the amended law, village enterprises, self-reliance enterprises and medical corporations that meet certain requirements will be recognized as SMEs and gain access to support programs covering policy financing, research and development, and market access.

Local governments and public enterprises will also be able to purchase small business products on a preferential basis across a wider range of contracts. The amended market-access support act passed by the Cabinet raises the priority procurement threshold for institutions subject to the Local Contract Act from the current maximum of 230 million won ($166,000) to 350 million won.

Local governments and public enterprises had been subject to the Local Contract Act for procurement procedures but applied the National Contract Act standard for the priority procurement threshold. The amendment aligns the threshold with each institution's governing contract law, bringing it in line with World Trade Organization Government Procurement Agreement standards for local governments.

The ministry expects the expanded priority procurement scope to increase opportunities for small and medium-sized enterprises to participate in the public procurement market. The revised threshold is set to take effect in December after a preparation period.


boo@heraldcorp.com