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Korea takes aim at ‘reckless’ tax benefits

Mounting government debt invites stricter review of relief targets

The Cabinet on Tuesday approved a blueprint from top economic policymakers to screen the targets for tax exemptions or relief as the nation struggles with snowballing government debt.

According to the 2014 tax expenditure plan unveiled by the Finance Ministry, the government will review the validity of tax exemptions and other related benefits that exceed 10 billion won ($9 million) per annum.

“After mapping out the details, the idea of more tightly screening the targets of tax benefits ― as proposed by ministries and government agencies ― will be implemented in 2015,” the Finance Ministry said in a statement.

The ministry added that the revised plan was aimed at promoting tax revenue soundness by slashing reckless exemptions or reductions.

Further, the government said that it expects to exempt or slash taxes worth 33.2 trillion won this year, which is about 400 billion won less than in 2013.

It also hopes to offer more tax breaks to the middle class and small and mid-sized companies ― up to 58 percent of the total exemptions from the 57.6 percent in 2013.

Details of these guidelines will be sent to all major government organs later this month, with the relevant parties required to submit their opinions by the end of April.

The latest plans reflect the so-called “pay-as-you-go” system, which has been pushed for by the incumbent administration, said ministry officials.

PAYGO is the practice of financing new spending commitments with currently available funds rather than fresh debt. Under the rules, a new legislative proposal must be funded by cuts to other programs, by revenue increases through tax hikes, or by a combination of the two.

This way, fiscal soundness is maintained by preventing political parties from recklessly passing costly welfare bills.

A Finance Ministry official cited the gravity of the problem surrounding the government’s mounting debt, which is projected to top 500 trillion won in 2014 and 600 trillion won in 2017 at the current pace of growth.

When adding the liabilities of public corporations and local governments, public sector debt is estimated to have surpassed 1,100 trillion won as of the end of 2013.

By Kim Yon-se (