Government flip-flops on tax policy

The Korea Times

The Korea Times

Finance

Sat, December 9, 2023 | 23:14

Economy

Government flip-flops on tax policy

Posted : 2014-03-05 18:43

Updated : 2014-03-05 18:43

Deputy Prime Minister and Minister of Strategy and Finance Hyun Oh-seok speaks during a weekly ministers' meeting on economic issues at the government complex in Sejong City, Wednesday.
/ Courtesy of Ministry of Strategy and Finance

By Yoon Ja-young

SEJONG CITY ― The government has been criticized for flip-flopping on its tax policies, causing confusion for homeowners and market participants.

The government announced measures to advance the housing rent market last week, but it ended up worrying homeowners over increasing taxes. It thus unveiled complementing measures easing taxes on rent income Wednesday.

Tax experts are also complaining about the frequency of changes in the government's tax policies to satisfy specific interest groups.

According to the plan announced last week, workers with annual incomes of up to 70 million won are to get tax deductions for monthly rent. The measure aims at inducing a shift to the monthly rent system from the country's unique rent system called jeonse, where tenants pay a lump-sum deposit for a two-year contract instead of monthly rent. Recently, soaring jeonse prices has been weighing on the economy.

However, the tax deduction means homeowners receiving monthly rents will have to pay taxes as the tax agency will be informed of their rent income, prompting complaints from homeowners.

"We note that the rent market is showing uneasiness, due to tax burden on small rent earners. Even if we are going in the right direction of normalizing taxation, it is better to control timing and pace of policies to relieve anxiety of the market," said Strategy and Finance Minister Hyun Oh-seok in a briefing.

In response, the government announced complementing measures to ease the tax burden of homeowners. For instance, small rent earners who have no more than two houses and earn less than 20 million won as rent annually will receive a tax break for the next two years. They will also be given a 4 million won deduction as expenses from the rent income. The government stressed that it won't increase the tax burden on pensioners who are living on rent incomes.

The problem is that it is not the first time that the government has made changes to its tax policies soon after announcing them. The Ministry of Strategy and Finance, for instance, announced a plan to levy tax on the clergy, only to immediately backpedal.

Tax experts say that such changes erode people's trust in government policies. "The government is continually changing policies it announced, after seeing the negative response. It recently presented a three-year economic plan, but the final version was very different from the original version. It just deleted those that can lead to controversies," said Shin Won-gi, coordinator at the Center for Tax Justice and Budget Priorities.

He argued that, as such "people lose trust in policies. Even if the government introduces some policies right now, you may expect them to change and scrap them anytime."

He further pointed out that tax policies are destined to face resistance. "You should make a very careful approach in building tax policies, but the government lacked preparation. It seems to be simply focused on making up for the deficit in the budget."

Kim Hag-soo, research fellow at the Korea Institute of Public Finance, said that ideally government shouldn't be influenced by politicians in setting its tax policies. "However, realistically it can't be free from influence. When people make objection, it has to respond, and it should also consider the economy (in setting tax policies)," he said.

This is not the first time that that the finance ministry has been criticized for being fickle in its policies.

Recently, it revealed the ambitious three-year economic plan, which soon triggered uproar as there was a huge difference between the original version and the final version announced a few days later. There were complaints that the mega-scale, long-term plan was hastily prepared, going through a series of revisions in only a few days.

yjy@koreatimes.co.kr