The nation's tax revenue shortfall is expected to reach about 10 trillion won by the end of this year, following an 8.5 trillion won deficit last year. According to the Ministry of Strategy and Finance, tax collected during the first four months of the year remained at 34.4 percent of the ministry's estimated total tax revenue of 216.5 trillion won for this year. This is lower than the 35 percent posted in the same period last year, let alone the 40 percent in 2012.
The ministry attributes the sluggish tax collection largely to the continuing economic downturn despite expectations of economic recovery earlier this year. April's tragic ferry sinking also put a damper on consumer sentiment.
Against this backdrop, the finance ministry is considering scrapping or cutting tax exemptions and other benefits granted to companies and individuals ahead of its August announcement of a tax code revision. But these measures seem insufficient to make up for the tax revenue shortfall, given a host of realistic problems.
The finance ministry planned to raise 15.3 trillion won more in 2012-13 by overhauling these tax benefits. But it was only able to collect 3.9 trillion won more because most of the benefits directly affected middle-class and working-class families and smaller companies.
Things are not that bright this time around. A case in point is the tax deduction rate for individuals' credit card spending. Last year, the finance ministry sought to lower the deduction rate to 10 percent from 15 percent under the pretext of raising funds for welfare, but this so-called reform plan fell apart in the face of a strong backlash from middle-class wage-earners who complained of their greater tax burden.
Given this, there is a growing consensus for the government to be more proactive in tax increases by raising rates on existing taxes or creating new taxes. The latest debate revolves around raising corporate taxes on large companies that have benefited from the government's high foreign-exchange rate policy and tax cuts carried out under the previous administration.
But opting for tax increases directly is never easy, given its political explosiveness for the Park Geun-hye administration that came to power by pledging not to raise taxes. Tax increases also risks deepening economic woes by prompting large firms to cut down on investments and high-income families to slash consumption.
But none will dispute the need to overhaul our tax system across the board in a major departure from cosmetic changes every year, given the resources needed to tackle the ever worsening polarization and deliver on President Park's welfare pledges.
The successful tax reform can begin by taxing large firms and the wealthy. After that, we can begin a debate on taxes in earnest.
The ministry attributes the sluggish tax collection largely to the continuing economic downturn despite expectations of economic recovery earlier this year. April's tragic ferry sinking also put a damper on consumer sentiment.
Against this backdrop, the finance ministry is considering scrapping or cutting tax exemptions and other benefits granted to companies and individuals ahead of its August announcement of a tax code revision. But these measures seem insufficient to make up for the tax revenue shortfall, given a host of realistic problems.
The finance ministry planned to raise 15.3 trillion won more in 2012-13 by overhauling these tax benefits. But it was only able to collect 3.9 trillion won more because most of the benefits directly affected middle-class and working-class families and smaller companies.
Things are not that bright this time around. A case in point is the tax deduction rate for individuals' credit card spending. Last year, the finance ministry sought to lower the deduction rate to 10 percent from 15 percent under the pretext of raising funds for welfare, but this so-called reform plan fell apart in the face of a strong backlash from middle-class wage-earners who complained of their greater tax burden.
Given this, there is a growing consensus for the government to be more proactive in tax increases by raising rates on existing taxes or creating new taxes. The latest debate revolves around raising corporate taxes on large companies that have benefited from the government's high foreign-exchange rate policy and tax cuts carried out under the previous administration.
But opting for tax increases directly is never easy, given its political explosiveness for the Park Geun-hye administration that came to power by pledging not to raise taxes. Tax increases also risks deepening economic woes by prompting large firms to cut down on investments and high-income families to slash consumption.
But none will dispute the need to overhaul our tax system across the board in a major departure from cosmetic changes every year, given the resources needed to tackle the ever worsening polarization and deliver on President Park's welfare pledges.
The successful tax reform can begin by taxing large firms and the wealthy. After that, we can begin a debate on taxes in earnest.
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