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Major Issues in Categorizing Businesses by Type: Supporting Small Businesses through Improved Categorization

Author Gil, Eunsun Date 2021.02.19 Issue No 103
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▣ Summary

The Korean government is considering providing a fourth round of disaster relief funding to support small businesses hard-hit by the prolonged social distancing measures implemented to contain the spread of COVID-19. However, determining which businesses should benefit from this support is quite tricky.

 

▣ Challenges

Legal business entities such as microenterprises and privately-owned companies are not the same as struggling, self-employed small businesses.

During the second and third rounds of support, only privately-owned microenterprises were eligible for relief. The amount of financial support available varied depending on whether businesses were ordered to limit the number of customers, had restrictions placed on business hours, or suffered losses in revenue.

Small business establishments categorized neither as microenterprises nor as privately-owned companies have been excluded from receiving support, regardless of the economic hardship they face. Moreover, privately-owned microenterprises (many of which are far from being small businesses with narrow operating margins) are not excluded from receiving support.

 

▣ Policy Proposals

To ensure that small businesses receive the support they need, enterprise size (fewer than 10 employees) must be the primary eligibility criterion for the fourth round of disaster relief funding. After this primary criterion is applied, eligibility can be narrowed or expanded based on financial need or economic vulnerability.

This primary eligibility criterion will benefit 74,000 privately-owned companies with five to nine employees. Additionally, 254,000 incorporated microenterprises and 82,000 incorporated companies with five to nine employees will become eligible for relief.

A further eligibility criterion has been introduced for the fourth round of disaster relief: A business owner that also works for another company and is insured under the national health insurance scheme (in which employees and employers split monthly premiums) is now ineligible for disaster relief. Alternatively, a business owner having paid tax in an amount over a certain threshold would also be ineligible for relief.

The new eligibility criteria will bolster support for small businesses economically-impacted by the COVID-19 pandemic and ensure the equity of the disaster relief plan.