Value context and insight. lkm@koreatimes.co.kr
Korea's tax burden soars to record-high in 2018
By Lee Kyung-min
Gov't collects more corporate income and capital gains taxes
By Lee Kyung-min
The government's tax revenues soared to an all-time high in 2018 on rising corporate income, fueled by stronger semiconductor sales and heavier home transactions, data showed Sunday.
The tax-to-GDP ratio rose to 21.2 percent last year from 20 percent in 2017. Korea's GDP reached 1,782 trillion won in 2018.
The pace of the increase was the steepest since 2000 when it jumped 1.6 percentage points from the year before. The ratio is on a steady rise from 17.9 percent 2013, 18.5 percent in 2015 and 20 percent in 2017.
Korea's tax revenue stood at 378 trillion won ($332 billion) in 2018, a 9.3 percent increase from a year earlier. Of the total, 293.6 trillion won, or 77 percent, was levied by the central government while the remaining 84.3 trillion won by municipal governments. The central government collected 28.2 trillion won more than in 2017, while local administrations earned 3.9 trillion won more.
The government collected 70.9 trillion won in corporate income taxes in 2018, up from 59.2 trillion won a year earlier. Semiconductor makers paid more income taxes on the back of brisk sales abroad last year.
The government received a total 18 trillion won in capital gains taxes in 2018, up from 15.1 trillion won in 2017, as more businesses and individuals sold and bought homes and other real estate properties. In addition, government policies, which took effect in September to raise capital gains tax rates on multiple homeowners to curb rises in housing prices, boosted the state coffer.
Under the widely dubbed “Sept. 13 policy,” an anti-property speculation measure, a heavier capital gains tax was in store, which led many owners of multiple homes to sell them.
A slight recovery in consumer sentiment led to 2.7 trillion won in value-added tax and import duties being collected.
The government collected 2.2 trillion won in stock transaction tax on the back of high trading volumes in the local bourse which experienced high volatility.
Meanwhile, Korea's tax-to GDP ratio was the seventh-lowest among OECD member nations in 2017.
Of the 33 members surveyed, Lithuania ranked at the bottom with 17.5 percent, while Denmark topped the list with 45.9 percent.
While the figure may help the government's initiative to boost welfare to strengthen the social safety net, any further move to increase taxes will be met with fierce protest from the public.
“In Korea, the tax code is designed to increase the burden on only those who are currently paying taxes, meaning a substantial portion of the population are enjoying free benefits at the expense of hard-working members of society,” said Sung Tae-yoon, an economist at Yonsei University.
The remark indicates that better accountability is required on public expenditures, especially given the government will continue to struggle to find ways to secure enough tax money for health and welfare expenditures amid the fast-aging society with plummeting birthrates of the past few years.
He added that the tax revenue increase last year did not come from a revision of a law but through a more restrictive interpretation of it.
“Previously, the government allowed some discretion and flexibility in imposing taxes both on corporate entities and private individuals, but that is no longer at play,” Sung said.