Regional Consumption, Income Taxes Eyed in 2010
By Lee Hyo-sik
Staff Reporter
Municipal administrations will likely be able to improve their fiscal health and bolster their finances for public projects if the central government is able to introduce regional consumption and income taxes.
According to the Ministry of Strategy and Finance Monday, the government wants to earmark 10 percent of value-added tax revenue as regional consumption tax and distribute it to local governments in accordance with the volume of consumption in respective jurisdictions.
Given that the government collected 41 trillion won in value-added taxes in 2007, more than 4 trillion won will go to local administrations each year, which will help strengthen their fiscal soundness.
Additionally, the two ministries are currently in talks over diverting 10 percent of income tax revenue, currently collected as residence tax, into regional income tax in 2010. Under the current income tax scheme, workers making 12 million won per year pay 0.6 percent of their salary as regional income tax, with those earning over 88 million won paying 3.3 percent annually.
The central administration would continue to collect the taxes and give them to local administrations. To ease taxpayers' financial burden, the government plans to maintain the income tax rates until 2012 and decide in 2013 whether to allow municipal administrations to raise the rates.
Currently, both value-added and income taxes are part of national tax, meaning that the central government collects and uses them. But real estate acquisition and registration taxes are local taxes administered by municipalities.
``We are consulting with the Ministry of Public Administration and Security for the creation of local consumption and income taxes to improve the fiscal balance of many local governments. Whatever the measures may be, they will not increase the taxpayer burden,'' a finance ministry official said.
The official added that the ministry would discuss the matter with other related ministries, adding that opinions would be gathered from municipal governments and that it would consult with the governing Grand National Party (GNP) to produce a final draft bill to go before the National Assembly. ``If these taxes are used, we will find ways to make up for the projected revenue shortfall.''
But there are concerns that the envisioned regional consumption tax could widen the revenue gap between municipalities located in the Seoul metropolitan region and those in provincial areas due to the tax being distributed according to level of consumption. Densely populated autonomous bodies would likely get more grants from the central government, with scarcely populated areas receiving little.