Tax Exemption Rollback Criticized

Government taxation measures intended to mobilize resources in a bid to alleviate income polarization are being criticized for further fueling it.

The recently announced measures include scaling down allowable tax exemptions and reductions, forcing the self-employed to submit payroll data to get a more accurate accounting of low-income financial data, creating new taxes, and increasing current taxes, like the soju tax.

Taxpayers, including the Korea Taxpayer’s Association (KTA), are opposed to the measures. The KTA criticized the government on January 23, saying, “The schemes are based on levying heavier taxes on low-income people, not high-income people, to support lower income brackets. Measures that are supposed to help ease polarization are going backwards.”

The Ministry of Finance and Economy’s 2005 report on tax revenue expenditure to the National Assembly revealed that out of 19.98 trillion won in tax exemptions and tax reductions, 43.3 percent, or 8.68 trillion won, went to supporting employees, farmers and fishermen.

In addition, 18.2 percent, or 3.63 trillion won, was set aside for tax cuts in support of small- and medium-sized companies and strengthening social security services.

In conclusion, 61.5 percent of the taxes that the government lowered or exempted were related directly to helping average Koreans become better off.

The government is determined to maintain tax cuts in relation to investment and R&D in an effort to develop growth potential. That means the government should reduce benefits for corporate employees, farmers, fishermen, and small- and medium-sized companies to scale down tax exemptions and cuts.

In particular, income tax cuts on corporate employees amount to 7.7 trillion won, and additional taxes on farming and fishing machines amount to another three trillion won.

“The ministry plans to maintain tax cuts on investment and R&D related entities for growth potential,” said Huh Yong-suk, team director of tax policy at the Ministry of Finance and Economy. Huh admitted that reducing tax cuts for farmers, fishermen, and ordinary Koreans would be inevitable.

The ministry plans to review 120 out of 160 provisions starting this May, but it is unclear whether a revision bill on limiting income tax cuts will pass the National Assembly.

Self-employed business owners are resistant to the new system under which they are forced to submit their payroll data to the government.

The president of the Korea Taxpayer’s Association, Kim Sun-taek, said, “It is hard for self-employed people, 80 percent of whom own small-sized businesses, to accept a system which only increases the four major insurance premiums, including national pension system, by eight percent.”

Some small business owners are protesting on the webpage of the Ministry of Finance and Economy.

Bahk Byong-won, the vice minister of the Ministry of Finance and Economy appeared on a radio program and said, “It is necessary to push for a tax increase on soju once again.”

Professor Jun Sung-in of Hongik University’s department of economics said, “It is likely that government measures intended to scale down tax exemptions and reductions will only increase the burden on average Koreans’ shoulders,” adding, “The measures might help secure tax revenues, but are a step backwards in terms of anti-polarization efforts.”

Hyun-Jin Park witness@donga.com legman@donga.com