Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Lee government moves toward tax hike policies
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol speaks during a Cabinet meeting presided over by President Lee Jae Myung at the presidential office in Seoul's Yongsan District, Tuesday. Yonhap
By Yi Whan-woo
More tax revenues needed to finance spending blitz
The government is on course to hike various types of taxes in a bid to finance President Lee Jae Myung’s campaign policies, according to economists Tuesday.
A return to higher tax policies for “the haves” has been outlined by Lee’s top economic policymaker, Koo Yun-cheol, in the administration’s first move to increase tax revenue after years of shortfalls in taxable income.
In addition, speculation is growing that the government will levy taxes in areas currently excused from taxation, such as investments in digital assets and purchases through overseas online malls.
Koo addressed the need to raise the cap on the corporate tax rate from the current 24 percent to 25 percent during his confirmation hearing last week to become the deputy prime minister and minister of economy and finance.
He also mentioned the need to tighten the rules for stock investments, enforcing capital gains taxes by lowering the minimum gains from the current 5 billion won ($3.6 million) to 1 billion won.
The maximum corporate rate of 25 percent and capital gains tax threshold of 1 billion won were previously imposed by the 2017-22 Moon Jae-min administration.
Former President Yoon Suk Yeol, who succeeded Moon, eased tax rules to the current levels in the name of economic revitalization driven by the private sector.
“Under the circumstances, the Lee government’s return to tax policy implemented by Moon suggests it is making a full-scale effort to reap as much taxable income as possible,” said Shin Se-don, a professor emeritus of economics at Sookmyung Women's University.
He noted both Lee and Moon are advocates of government-led economic growth, which promotes expansionary fiscal policies based on increased tax revenue. The president once estimated that his plans to revive the economy for the people would require 210 trillion won throughout his single, five-year presidency.
The shortage in tax revenue amounted to 56.4 trillion won in 2023 and 30.8 trillion won in 2024 during Yoon’s term, a trend likely to continue this year.
The shortfall is partially attributable to the lower corporate taxes, as the amount collected from companies decreased by 40 percent to about 60 trillion won between 2022 and 2024.
“Going after ‘the haves’ is a safe option in reaping more taxable income, as there are far fewer corresponding taxpayers than salaried workers and other ordinary citizens,” Shin said. “Imposing higher taxes on them is unlikely to influence the president's approval rating.”
While the Ministry of Economy and Finance said no details have been discussed, sources familiar with the ruling Democratic Party of Korea (DPK) said that consultation is underway with the government to toughen the so-called comprehensive real estate holding tax.
Those with a single expensive home or multiple homes are subject to such tax, which has been disputed for its punitive nature as it is levied separately from regular property taxes.
The amount of comprehensive real estate holding tax decreased from 727 billion won in 2021 to 446.3 billion won in 2024.
In its search for more tax revenue, the government is expected to go ahead with a planned 22 percent tax on crypto income when the current taxation delay expires on Jan. 1, 2027. The tax was originally planned to take effect in 2021 but was delayed three times due to concerns that the policy could dampen market sentiment.
Shoppers who buy goods directly from overseas shopping malls are also the potential target for taxation. They are currently exempt from customs duties and value-added tax if the purchased products total less than $150 per order, and under $200 if from the United States.
“Such exemptions can be an issue of reverse discrimination against domestic retailers, and the government may impose tax on buyers and claim it is for fair trading,” Yoo Ho-lim, a professor of taxation at Kangnam University, said.
Meanwhile, some critics view the Lee administration’s tax policy as potentially stirring controversy for inconsistencies and breaching fair trade agreements.
They noted that the current 5 billion won threshold on capital gains for stock investors was made possible with Lee’s consent when he was the DPK leader in 2024, and that imposing tax on overseas shopping mall purchases should be determined in line with trade agreements with corresponding countries.