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Earned Income Tax Increasing Faster than Average Salary
Tax Base Expansion Results in Tax Increase
Earned Income Tax Increasing Faster than Average Salary
  • By Jung Suk-yee
  • January 14, 2020, 09:12
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The average salary of Korean employees rose 3.6 percent to 36.47 million won in 2018.

The National Tax Service announced on Jan. 13 that a total of 18.58 million salaried employees, up 3.2 percent from a year ago, conducted year-end tax adjustment for their 2018 income and their average salary rose 3.6 percent to 36.47 million won. Meanwhile, the total earned income tax jumped 10 percent to 38.3 trillion won and the effective tax rate rose from 5.46 percent to 5.62 percent.

The increase in earned income tax that surpasses the rate of wage increase and the increase in effective tax rate are because of progressive taxation and the tax credit that was adopted in 2013 to result in more tax burden on the part of middle- and higher-income salaried employees.

In addition, the income subject to the maximum income tax rate was adjusted from more than 300 million won to more than 150 million won in 2014 and the maximum income tax rate was adjusted from 40 percent to 42 percent by the current government, which has caused high-salary employees to bear more burden. The number of such employees itself has increased as well. Specifically, the number of those who earned more than 100 million in 2018 is 802,000, up 11.5 percent from a year earlier, and the ratio of such people increased by 0.3 percentage point to 4.3 percent in 2018.

Earned income tax credit (EITC) expansion is a worrisome part related to an increase in earned income tax revenue. The South Korean government has increased its annual EITC payment from 1.8 trillion won to 5.6 trillion won last year and this year’s EITC payment is estimated to be close to it. The payment is from the earned income tax and the government is estimating this year’s earned income tax revenue at 41.8 trillion won, which means salaried employees’ earned income tax is likely to amount to 47 trillion won this year.

Their burden increases even more in view of the inflation rate. At present, their earned income taxes are calculated based on their nominal wages. “A significant tax base expansion has already resulted in a substantial tax increase,” said Korea Taxpayers Association President Kim Sun-taek.