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Veering from Higher Taxation on Middle Class to Tackling Tax Evasion
Tax Law Revision Bill
Veering from Higher Taxation on Middle Class to Tackling Tax Evasion
  • By matthew
  • August 14, 2013, 06:59
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Korea's National Assembly meeting.
Korea's National Assembly meeting.

 

The government and the ruling party agreed to raise the lower limit of annual income for additional taxation from 34.5 million won (US$30,809) to 55 million won (US$49,115) by amending the tax law revision bill for this year. 

Ruling Saenuri Party spokesperson Min Hyun-joo announced on August 13 that Prime Minister and Ministry of Strategy and Finance Hyun Oh-seok submitted a report on the new revision plan to the party. According to her, those wage earners with annual incomes of 60 million won (US$53,580) or 70 million won (US$62,510), who would have had to pay 160,000 won (US$142.88) of extra tax a year otherwise, are expected to be able to enjoy a tax cut of 20,000 won (US$17.86) or 30,000 won (US$26.79) per year, respectively. The amount of 55 million won (US$49,115) is the reference line for the middle class used by the OECD, 150% or less of the median income. 

Initially, the government was planning to increase the tax imposed on those with an annual income between 34.5 million won (US$30,809) and 70 million won (US$62,510) by 160,000 won (US$142.88) per year. The government planned to adjust the earned income tax rate and reform income tax and tax deductions. However, the new plan is characterized by raising the lower limit to 55 million won (US$49,115). 

To this end, the government is going to readjust the earned income tax rate in the income bracket. It originally intended to cut the rate by 3 to 10 percentage points in all income brackets, but the rate of reduction is expected to be decreased. Earned income tax deductions are used to calculate the tax base by subtracting a certain amount from gross salary. The higher the deduction rate is, the lower the portion of the income subject to taxation. 

According to the new revision bill, total tax revenues are likely to be reduced by approximately 400 billion won (US$357 million) a year. The Ministry of Strategy and Finance is planning to make up for it by thorough investigation into the tax evasion by high-income professionals and the self-employed. Still, the ministry did not accept the request from political circles to withdraw the plan for reducing credit card tax deductions.

“Credit card tax deductions have to do with the household debt problem, and thus it is not easy to change the policy,” said the ministry, adding, “We need to provide some advantage for the high-income class as well, and encourage more people to use debit cards instead of credit cards.” 

Earlier than that, the ruling party had presented plans revolving around a lower tax burden on the working and middle class, heavier taxation on high-wage earners, and support for lower-income workers by means of earned income tax credit and child tax credit. “The government has come up with a new revision plan following our requests,” said the party’s floor leader Choi Kyung-hwan, adding, “We are looking forward to tax reform in which the middle and working class pay less taxes while fair taxation is strengthened.”

The party called upon the government to beef up its investigation into tax evasion by the high-income group and offer subsidies for educational spending and medical expenses to assuage the middle class upset by the initial tax law revision plan. “Once the revision plan is submitted in the regular National Assembly session in September, the Strategy and Finance Committee will go over it with care,” said Kim Tae-heum, floor spokesperson of the ruling party. 

In the meantime, the Prime Minister refuted the claim that the government is planning for higher taxation in order to spend it on welfare. “It seems that many people are mistaking a tax revenue increase as a tax boost,” he said.