Tax benefits increase fivefold

By Park Hyong-ki

The National Assembly Budget Office said Wednesday that Korea’s tax benefits in the form of exemptions and reductions have increased fivefold over the last 17 years, calling for an efficient retooling of its tax codes in the face of growing social welfare cost.

Its analysis showed that tax exemptions amounted to about 35.9 trillion won last year, compared to 7.7 trillion won in 1998.

The amount surpassed 10 trillion won in 1999, and has exponentially increased to 30 trillion won in 2009 as former administrations expanded the number of tax benefits to spur consumption and investment as the economy faced a number of global financial crises.

The exemption rate in proportion to the country’s tax revenue has been declining since 2013. But the decrease comes as the government was able to increase its overall tax collections over the years.

The rate dropped to 14.1 percent last year, from 14.3 percent in 2014. It is expected to further decline to 13.6 percent this year, and forecast to fall to 13.3 percent.

Korea’s tax revenue amounted to some 190 trillion won in the first nine months of this year, up about 14 percent from a year ago, according to the Finance Ministry early this month.

This is due to a general increase in the collection of corporate, value-added and income taxes.

The former Kim Dae-jung administration had the lowest rate of 12 percent, followed by that of Roh Moo-hyun at 13.2 percent. The former Lee Myung-bak administration had the highest rate of 15 percent as his government expanded the benefits following the collapse of Lehman Brothers in 2008.

However, concerns are growing over the fundamental of the tax system as the country is collecting taxes more from its workers than from its companies. The increase in income tax revenue exceeded that of corporate taxes, with the former growing 54 percent over the last four years, compared to the latter's 12 percent.

“There is a need to efficiently and effectively manage the tax system considering that social welfare benefits and costs are expected to increase,” the budget office said in a report.