Ruling Party Promoting `Hometown Tax`

The ruling Grand National Party yesterday decided to introduce a tax system where 30 percent of residential tax can go to taxpayers’ hometowns as part of a pledge for the June 2 local elections.

The measure seeks to support regions with weak financial capacity, considering that the number of residents who moved to the affluent Seoul metropolitan area, including Incheon and Gyeonggi Province, is eight million.

Kim Sung-jo, chief of the ruling party’s policy committee, said the measure will be finalized as the party’s pledge for the local elections after undergoing procedures this week. The “hometown tax” will be taken from the resident income tax, and the new measure is expected to be implemented as early as next year after provincial and tax break limitation laws take effect this year.

With the adoption of the hometown tax, employees can request up to 30 percent of their residential tax determined by their monthly tax payment to other regions they lived for more than five years, including their hometowns.

For example, a person who earns an annual income of 66 million won (59,000 U.S. dollars) can contribute 120,000 won (107 dollars) from their yearly resident tax of 400,000 won (360 dollars) to his or her hometown’s development.

The ruling party is reviewing two ways to pay the hometown tax. One is the taxpayer selecting the region to collect his or her hometown tax to be automatically paid to the regional government. The other is to have the taxpayer directly pay part of the residential tax to the provincial government that governs his or her hometown and receives a tax or income tax deduction the next year.

The ruling party says the hometown tax system will financially help the Gyeongsang, Jeolla, Chungcheong and Jeju provinces, whose financial autonomy is under 40 percent, since part of the wealth from well-off regions can be directed to those plagued by financial difficulties. The new plan, however, could arouse tension among municipal and provincial governments, leading to controversy over its implementation.

Japan introduced a hometown tax in April 2008 after much controversy. This was first proposed by then Prime Minister Shinzo Abe ahead of the upper house elections in July 2007. Back then, if a Japanese person contributed 10 percent of his or her residential tax to his hometown, the equivalent sum was deducted from residential tax the next year.

Through an unofficial review, the Korean Public Administration and Security Ministry expressed doubt, saying, "Japan’s hometown tax case has shown negative side effects such as excessive competition among regional governments to attract the hometown tax by offering over-the-top gifts.”

Ruling party official Kim said, “In Japan, regional governments set up special offices or offer gifts to attract hometown tax. We can prevent excessive competition by banning such acts. The hometown tax cannot be a panacea, but will serve as momentum to enhance the financial autonomy of regional governments.”

legman@donga.com egija@donga.com