The government on Wednesday unveiled its plan to impose higher taxes on rich individuals and large businesses, seeking to fund President Moon Jae-in’s plans to boost employment and to support small-sized businesses.
“We have decided that an adjustment in tax rates is needed to secure the nation’s tax revenues,” Deputy Prime Minister for economic affairs and Finance Minister Kim Dong-yeon said in a ministry-led taxing policy meeting Wednesday.
But considering financial circumstances and taxation equity, the tax rate hike will be limited to people on high incomes and the most profitable conglomerates, the minister underlined.
Deputy Prime Minister for economic affairs and Finance Minister Kim Dong-yeon on Wednesday announces the government's revised taxation plan. (Ministry of Strategy and Finance)
According to the revised tax law presented by the Ministry of Strategy and Finance, the income tax rate will rise from the current 40 percent to 42 percent for those with taxable income exceeding 500 million won ($444,000) per year.
Also, a new taxation bracket for those earning 300 million won-500 million won will be subject to a 40 percent tax rate.
The rate for businesses with taxable income of 200 billion won or more has been raised to 25 percent, for the first time since the former conservative Lee Myung-bak administration slashed it to 22 percent back in 2012. The current 22 percent rate will henceforth be applied to companies with income of 20 billion won to 200 billion won.
Low-income workers, job-seekers and small-sized companies, on the other hand, will be offered an expanded range of benefits, whether through subsidies or tax deduction.
Workers will receive a 10 percent increase in their employment subsidy and an extra 2 percent tax deduction on their monthly rent. Also, SMEs will be provided with an extra tax deduction of 5-7 million won, depending on business size, for every new recruitment.
The ministry contended that this renewed taxation plan will lead to some 5.5 trillion won in additional tax revenue per year, while impacting around 93,000 individuals and 129 large companies.
Of the amount, 2.57 trillion won will be gathered from individual taxpayers and 3.7 trillion from companies. Of this, 820 billion won is to be spent on supporting SMEs.
“In order to switch our economic paradigm and to deal with social crises, it is crucial that the financial sector play an active role,” the finance minister added.
“Tax policies will thus focus on job creation and fair distribution of wealth, seeking to eventually overcome low growth and polarization.”
The tax hike, along with the real estate regulation plans, was largely in line with the liberal President Moon’s economic slogan of “income-led growth” which asserts that sustainable economic growth should be fueled by improvements in household income and spending.
In order to secure the 178 trillion won of extra budget required for the goal, a tax hike on the high-income bracket came to be an inevitable option for the government, despite its former stated reluctance to increase taxes.
The discussion was kindled by ruling Democratic Party of Korea chief Rep. Choo Mi-ae last month, upon which the president hinted at approving the idea.
The tax revision bill will be submitted to the National Assembly on Sept. 1.
By Bae Hyun-jung (email@example.com)