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Korea to raise W134tr to fund election pledges

Plan calls for cutting state spending, reducing tax benefits, regulating underground economy

The Finance Ministry on Friday announced a state-led fundraising plan between June 2013 and February 2018 to carry out the Park Geun-hye administration’s 140 major policies.

The state fundraising plan is set at 134.8 trillion won ($122.5 billion) over the next five years, which will be poured into four major sectors ― vitalization of the economy, people’s happiness, cultural prosperity and readiness for Korean reunification.

According to the ministry, policymakers aim to achieve the state financing goal by “cracking down on the underground economy” to expand tax revenue sources and “reducing a variety of tax benefits.”

For the revenue sector, the government is considering increasing its national tax revenue by 48 trillion won without adjusting tax rates and raise 2.7 trillion won in non-tax revenue by taking stern disciplinary action against unfair financial trading in the market.

By shining a light on the underground economy and revealing tax evasion attempts, it plans to secure 27.2 trillion won. It will also raise 18 trillion won by streamlining existing tax cuts, exemptions and other benefits.

The underground economy refers to practices such as those often found in the construction and service sectors where taxes are withheld or not paid, as well as illegal activities such as drug dealing and prostitution.

The National Tax Service recently launched a full-fledged investigation into 224 figures including private moneylenders on allegations of tax evasion.

The 224 targets are composed of 117 private moneylenders, 51 entrepreneurs in the conglomerate sector, 48 individuals on suspicion of offshore tax-dodging and eight purchasing agents of overseas goods.

The tax agency clarified that the probe is aimed at securing a base to levy taxes on dubious profit-makers in the black market. The tax agency dispatched 927 inspectors as an increase of about 400 compared to past probes in manpower.

Taxation on financial income will also be enhanced, which will have the effect of increasing tax revenue by 2.9 trillion won.

Further, the government plans to cut its infrastructure spending. Ministry officials said this will reduce public expenditure by 11.6 trillion won over the coming five years.

However, later in the day, some ruling and opposition lawmakers said they would call on the government to revise upward the investment in the SOC projects, saying that a slashed investment in infrastructure will undermine provincial development and the construction industry.

Vice Finance Minister Lee Suk-joon said in a news briefing that the detailed measures indicate that the government will improve tax justice and effectively restructure spending in a way that upgrades the related systems.

The government initially plans to raise 7.4 trillion won by the end of 2013, 17.4 trillion won in 2014, 30.5 trillion won in 2015, 36.8 trillion won in 2016 and 42.6 trillion won in 2017.

Meanwhile the Park administration is poised to rule out tax hikes in its policy to secure funds for social welfare.

Under Park’s welfare project, which is expected to cost the nation more than 90 trillion won over five years, some economists had expected that high-income and major business groups would ultimately be the main target of tax authorities.

But in contrast to market prediction, government sources said that most of the promised welfare project will be enforced without directly raising taxes.

A government official said there will be no direct tax hikes. “As a substitute, the administration is considering raising funds by restructuring tax expenditure and improving efficiency.”

By Kim Yon-se (kys@heraldcorp.com)
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