The government is seeking to rewrite the tax code to ease the burden on low-income groups and increase wealth distribution, according to government officials.
The incumbent administration’s economic officials are in last-minute coordination with political circles in reshaping the taxation system to be both “fair and efficient,” they said. The ruling camp plans to finalize the changes in August.
The government is also reportedly in talks with religious leaders, such as priests and Buddhist monks, to reach a consensus over the feasibility of taxing the religious sector.
The revision ― which would include revising methods of calculating yearly taxes, deductibles from workers’ income, investment and spending ― will also focus on boosting the economy and distributing equitable wealth for the middle and low income brackets.
This would contrast with the current system where almost everyone benefits from the same tax credits regardless of income level and asset holdings.
The revised system will have those in the upper-middle and top income brackets paying more taxes and receiving fewer exemptions and deductions, while those in the bottom income group will pay less tax and receive more deductions than the rich.
It has been reported that the government may set the standard annual income level at 40 million won to differentiate the two groups when evaluating and calculating their tax returns.
The Korea Institute of Public Finance, a state-run financial think tank, suggested in a report that there needed to be a “change in the deductions system” to boost wealth distribution and raise government tax revenue. The Ministry of Strategy and Finance has assigned the KIPF to draw up ways to revise the tax policy to spur both growth and revenue by opening public hearings among tax professionals and academics.
This comes as the Park Geun-hye administration plans to secure 135 trillion won over the next five years to finance the country’s welfare expansion, as pledged by the president during her election campaign last year.
Of the 135 trillion won to finance welfare, 53 trillion won will come from government revenue sources, with the rest secured through budget restructuring, the Ministry of Finance noted.
The administration previously mentioned it would not introduce or raise taxes but reduce the number of tax exemptions and benefits enjoyed since the global financial crisis of 2008.
However, it will maintain some of tax deductibles or rates that have been politically sensitive such as tax deductions on credit card spending and rates on cigarettes and alcohol beverages as they affect common workers.
The revision aimed at taxing the rich more and the poor less has also been part of the president’s policy of developing Korea as an economy that supports mid- and low-income families.
The government has been setting up its tax auditors and regulators against the rich allegedly hiding financial assets overseas via tax haven accounts and the black market to properly collect taxes.
Despite efforts to raise taxes to finance growing welfare costs, the government is expected to face a revenue shortfall, which could hinder other spending plans and increase its deficit.
The government plans to introduce its revised tax bill for National Assembly approval by the end of September.
