Parties Locked in Tax-Cut Competition
By Lee Hyo-sik
Staff Reporter
The governing and opposition parties are locked in a tax-cut competition, which appears to reflect the ideological party lines they pursue.
Democratic Party Chairman Chung Se-kyun said the liberal party will propose a reduction in value-added tax to 7 percent from the current 10 percent. He said the reduction would ``democratically'' affect all business transactions.
He claimed that the DP is the party for the working- and middle-class, portraying the governing Grand National Party (GNP) as the party for the rich.
Chung criticized the GNP for seeking to reduce the property tax on owners of luxury apartments and residences, vowing that his party will block the move through whatever means possible.
President Lee Myung-bak and his party have indicated that property tax must ultimately be abolished as it was an ``ideologically oriented, punitive double taxation on unrealized capital gains.'' Lee won the presidency partly on his campaign platform to reduce the ``retaliatory tax'' his predecessor Roh Moo-hyun instituted.
Chairman Chung admitted the negative image his party was saddled with for having introduced the punitive ``tax bomb'' on holders of ``luxury'' residences.
The governing party seeks to portray the opposition DP as an ``ideologically left-leaning party that seeks to reflect its own ideology even in the tax cut plan.''
However, many analysts said that tax reform should transcend ideological warfare.
Over the past month, the GNP has introduced a range of tax cuts, including income and capital gains taxes.
But the main opposition DP is set to present its own tax cutting scheme, which it says will care for the middle- and low-income classes. A party official said Chung and other senior members were working on the tax reduction plan aimed at helping low-wage earners and small firms that are struggling with high consumer prices and stagnant business conditions.
``However, we have not yet finalized the proposal. But lowering value-added tax rates will be included to lessen the tax burden on small business owners. We will make it public as soon as possible,'' he said.
The opposition party has so far attacked the GNP by arguing that high-income earners and large businesses will likely become the main beneficiaries of its tax cut at the expense of the low-wage brackets.
In particular, the DP called the GNP plan to slash property tax the latest in a series of policies for the rich. The party also threatened to boycott the National Assembly unless the plan is retracted, insisting that it will further widen the wealth gap between the haves and have-nots and create greater social unrest.
The government and the GNP want to hike the threshold for the all-inclusive property tax to 900 million won from the current 600 million won; to halve the tax rate to 0.5-1 percent; and to give additional tax discounts of 10-30 percent for senior citizens who own expensive residences. The plan, if realized, would reduce the number of households subject to the punitive tax, to about 161,000, about 0.7 percent of all homeowners, down from the current 387,000, or 2 percent.
The tax, first levied in 2005, applies a higher progressive tax rate to owners of homes worth more than 600 million won under the government-assessed price standard. It was designed to curb demand for luxury apartments, especially in southern Seoul, and stabilize rises in property prices. Those holding land worth more than 300 million are also subject to the tax.
The main opposition party also vowed to block the GNP's plan to slash corporate income and inheritance taxes, which it claims will only benefit big corporations and the rich.
Early this month, the government unveiled a 26 trillion won tax cut package to be implemented over the next five years. Among others, the maximum corporate tax rate will be cut from 25 percent to 20 percent by 2011. The minimum rate will also be lowered to 10 percent from the current 13 percent over the same period.
Inheritance and gift taxes will also be slashed to the 6-33 percent range in 2010, compared with the current 10-50 percent.
But the DP is reportedly willing to discuss income tax cuts for salaried workers and the self-employed, and real estate capital gains tax reduction with the GNP to find common ground. ``The party will actively engage in intense discussion about income and capital gains tax cuts to make reductions more beneficial for low-wage earners and people owning a single house,'' the official said.