By Lee Hyo-sik
Staff Reporter
Income tax rates for salaried workers and the self-employed could be cut two percentage points next year to spur private consumption and stimulate the sluggish economy.
A similar measure could come for the comprehensive real estate tax on properties owned by businesses, to prompt them to expand investment and create more jobs. To make up for revenue shortfall, the government will broaden the tax base and reduce tax deductions for workers.
The Strategy and Finance Ministry said Friday that it will discuss these proposed tax changes with the ruling Grand National Party and announce the final plan Aug. 25.
The income tax for workers ranges between eight and 35 percent according to income bracket. Those making 88 million won or more a year, for example, pay 35 percent in income tax, while those making under 12 million won qualify for the eight-percent rate. Nearly half of the country's workers, however, were tax exempt in 2006 as they fell below the tax exemption level.
The income tax range will fall to between six and 33 percent if the proposed cut goes through. For instance, a household headed by a salaried employee earning 60 million won per year will be subject to 700,000 won less in income tax.
In the April 9 general elections, the ruling party pledged to cut income tax one percentage point, something which is projected to reduce state revenue by 1.7 trillion won a year.
A ministry official said the income tax cut of two percentage points will go into effect in July next year after oil tax rebates are provided to workers and the self-employed.
He acknowledged worry that the proposed cut will primarily benefit the wealthy and compromise fiscal soundness, but said the reduction would not worsen the income gap or state coffers.
The main opposition Democratic Party and other parties say high-income earners and large businesses will mainly benefit from the cut, while the low-income bracket and small businesses will be left out. They also blasted the ruling camp as appealing to populism through the tax reduction.
Also under consideration is lowering all-inclusive real estate tax rates on property used for business to ease the corporate tax burden, as well as encourage firms to invest more and hire more workers. Companies holding land worth more than 300 million are subject to the tax.
To make up for a revenue shortfall as a result of the tax cuts, the government is moving to broaden the tax base and take other measures. The proportion of salaried workers who pay taxes will rise and tax deductions for employees will be eliminated.
Stricter audits are also scheduled to trace the income of independent business owners suspected of underreporting their earnings. To do so, value-added taxes could be applied to an array of educational and medical services to better track income.