ed Debate on tax revision

Assembly needs to address loopholes in current system

One of the biggest frustrations of average Korean workers is that they have been paying more taxes while incomes remain stagnant. Resistance to taxation is higher than ever among workers because they are unconvinced that the current tax system is fair. Many don’t believe that their taxes are being spent wisely or that they benefit from paying such high taxes.

The average taxpayer is right to be angry, as a recent state report confirms that workers are shouldering more taxes on their incomes than before. According to the latest National Tax Service (NTS) report, tax revenues totaled 208 trillion won in 2015, the highest since the NTS was established in 1966. Income tax revenue showed an almost 50 percent increase in the last five years, while corporate and value-added tax rates saw little change. Public indignation toward taxes will only grow unless measures are taken to mend the current system, which is seen by many as benefiting only the rich.

Many workers believe the tax burden has consistently increased during the Park Geun-hye administration. President Park took office pledging “welfare without tax hikes,” but that pledge has failed. Welfare spending is already approaching 10 percent of Korea’s GDP and the government will find it harder to manage the costs. It is imperative for the National Assembly and the government to fix structural problems in the current system.

One of the most glaring fallacies of the current system lies in the fact that almost 50 percent of workers are not paying income taxes. A recent report found that the ratio of people exempt from paying income taxes is much higher than most advanced countries. According to statistics, 48 percent of the workers aren’t paying any income taxes due to various benefits as a result of a previous tax revision. This figure is much higher than the 15.8 percent of Japanese and 22.6 percent of Canadians who are exempt from paying income taxes. The ratio, which stood at 32 percent in 2012, soared to above 48 percent following the tax revision, meaning that one out of two workers are not paying taxes. Parties should first address the excessive high ratio of income tax exemptions.

It is timely that the main opposition Minjoo Party of Korea (MPK) has started a debate on tax revisions with a set of proposals last week to raise taxes on high-income earners. The main opposition’s revision plan would place more tax burden on the upper brackets while providing more benefits to lower earners. The MPK’s proposal to levy a 41 percent tax on those who annually earn more than 500 million won, from the current highest income tax rate of 38 percent, is sensible. The proposed figure is still lower than the OECD average of 43.3 percent.

The MPK’s plan also has problems, as it lacks measures to broaden tax sources. Its proposal to impose a hike on corporate tax — to 25 percent from the current 22 percent on big companies with annual profits above 50 billion won — should also be given careful consideration. The share of Korea’s corporate tax to its GDP is 3.2 percent which already exceeds the OECD average of 2.9 percent. This proposal will strain domestic manufacture.

Ahead of the regular Assembly session, parties should actively engage in productive discussions to mend the tax system with the goal of reducing the wealth gap. Many experts say that broadening tax sources should be accompanied by a tax hike on high income earners.