Korea Set to Cut Income Tax for Salaried Workers

Korea plans to rewrite its tax rules to lower the tax burden on salaried workers and their families, government officials said Tuesday.

The revised rules, scheduled to go into effect in mid-February, will result in an annual income tax reduction of about 190,000 won ($202) for workers who earn 40 million won and have a three-to-four-member household, the Ministry of Finance and Economy said.

The tax reduction will go up in line with salaries and reach 280,000 won for people making 50 million won a year and 360,000 for those earning 60 million won, it said.

Wage-earners living with three other people and making 70 million won a year will pay 680,000 won less than in 2007, according to the ministry.

The ministry also said people who take over family businesses that have been in operation for more than 15 years and run them for a set period of time without selling their holdings can get a deduction in their inheritance taxes.

"The rules are designed to allow small businesses, which account for the bulk of local jobs, to stay in business even if the original owners pass away," a government official said. The tax deduction rate could reach 20 percent of inherited assets or up to 3 billion won.

People that take over family-owned businesses would also be allowed to pay their inheritance taxes in set installments for up to 12 years after a grace period of 2-3 years. These are better conditions than ones for ordinary inheritors, who can pay their inheritance taxes in installments extending five years with no grace period.

The rules for receiving inheritance tax deductions used to be stricter and did not include restaurants, which make up the majority of small family businesses.

The ministry also said a new clause has been introduced this year to allow cash rewards of 1 million won for reporting businesses or private citizens that conceal properties or financial holdings under another person's name to evade taxes.

South Korea's tax codes specify higher rates for property and financial holdings that exceed certain limits, which has resulted in some people hiding their holdings.

Other changes that will be implemented this year include the option to pay value-added, income, comprehensive real estate, excise and import duties through credit cards if the total does not exceed 2 million won.

The government said private citizens and companies that invest money in overseas natural resource development work would be eligible for tax cuts.

Seoul is stepping up efforts to reduce its near total dependence on energy and mineral resources by getting companies to develop new oil and gas fields and mines in foreign countries. The tax benefits apply to those who buy stakes in foreign resource developers, the ministry said.