220,000 Won Tax Break for Salaried Workers

The annual income tax for salaried workers next year will decrease by an average of 220,000 won (15percent), and the income tax for self-employed workers will also decrease by an average of 370,000 (12percent) won per person. Corporate taxes will also be cut but to a less noticeable degree than with individual income taxes.

The proposed Tax Reform Bill for 2002, which is structured around a uniform reduction of the core income tax rate, was announced by the Ministry of Finance and Economy (MOFE) following a series of meetings involving the administration and the Tax Reform Subcommittee chaired by Yong-Sung Park, who is also chairman of the Korea Chamber of Commerce.

As part of the tax reform bill, the government plans to lower the overall income tax rate from the current range of 10 - 40percent to 9 - 36percent, representing a 10% across-the-board tax rate cut. The proposed reduction in the overall income tax rate is the first in the seven years since the last rate cut in 1994.

As a result, the salaried working population as a whole will pay 1.13 trillion won less in income taxes, while the self-employed population will pay 460 billion won less on an aggregate level. Taking into account the regional (provincial) residential tax of 10percent, individual income taxes paid next year will be reduced by about 1.749 trillion won, representing tax savings of 1.243 trillion won for the salaried population and 506 billion won for the self-employed population.

Furthermore, according to the tax reform plan, salaried workers in the lower and middle wage brackets will receive comparatively greater tax breaks, as standard deductions will be increased for workers earning an annual income ranging between 5 million and 30 million won.

Along with the lower wage tax rates, the tax-exempt cutoff line for salaried workers supporting a four-member household will be raised from 13.17 million won to 13.92 million won.

At the same time, real estate transfer taxes, which currently range between 20 and 40percent, will be applied the same as the comprehensive income tax rate and be cut across the board by 23percent. In addition, the real estate transfer tax policy will shift from a `high rate, high exemption` structure – originally designed to prevent real estate speculation – to a `low rate, low exemption` structure. As a result, the tax burden incurred while conducting real estate transactions will decrease by 23percent next year.

The government will also eliminate the 15% tax on corporate real estate gains and the 15percent tax penalty levied on excessive dividend withholdings. However, of the 2.55 trillion won reduction in the current tax reform package (excluding residential and local taxes), tax reductions for the corporate sector were limited to 21percent of the budget cut, or 540 billion won.

To partially offset the expected reduction in tax receipts due to these wide-ranging tax cuts, the bill also stipulates that 650 billion won in taxes be raised by eliminating or scaling back 59 of the 180 current tax exemption and reduction regulations.

yhchoi65@donga.com