[Editorial] Another compromise

By Korea Herald

Clergy income tax codes contain big loopholes

  • Published : Dec 25, 2017 - 17:27
  • Updated : Dec 25, 2017 - 17:27
On Tuesday, the Cabinet is to endorse enforcement decrees to a revised tax law, which paves the way for levying income tax on the clergy.

The ordinances are not without problems -- some of them serious -- but it is good for the nation to take the first step in addressing an issue that had infringed upon the principle of universal, fair taxation.

Taxing the income of the clergy has been a contentious issue since the 1960s. In the face of protests from religious groups and politicians who live on their votes, the plan had long been stalled. As a result, Korea remained the only member of the 35-nation Organization for Economic Cooperation and Development not taxing the income of clergy.

It was only in 2015 when the National Assembly managed to pass a revision bill to the Income Tax Act to impose tax on the clergy. The bill, however, was put on hold as lawmakers gave in to pressure from religious groups and set a two-year grace period.

The fact that there was yet another attempt by politicians, including those close to President Moon Jae-in like ruling party lawmaker Kim Jin-pyo, himself an elder in a Protestant church, shows how strong resistance the plan faced.

But the government and parliament should not indulge in self-satisfaction for succeeding in overcoming the resistance, because the taxation rules contain many loopholes, which are feared to even facilitate tax evasion.

The biggest problem is that “religious activity expenses” have been exempted from taxation. The expenses refer to money given to pastors, monks and priests to support their activities as members of the clergy.

But as experts point out, there will not be clear distinction between salaries and religious activity expenses.

In an extreme case, if a clergy member receives all his or her payment in the form of religious activity expenses, authorities would not be able to collect any tax.

To make it worse, the new tax codes empower religious organizations to define religious activity expenses on their own. This is too generous compared to other expenses that are strictly limited and specified by the law.

Another big problem is that religious organizations that will have such discretion will be free from tax audits because the new codes allow tax authorities to investigate the account books of only individual clergy members. It is another case of government officials and politicians yielding to the religious groups’ argument that the government may use tax audits in controlling religious organizations.

Excluding religious organizations, some of which take enormous sums of donations, from tax audits could facilitate corruption and financial misdeeds. We remember past corruption cases that occasionally hit religious organizations.

One common example is that every year religious organizations are caught issuing fake receipts for donations, which their members use to get tax deductions on their year-end tax settlements.

Due to the negative public sentiment, the leniency of the rules has drawn the attention of Prime Minister Lee Nak-youn, who instructed officials to make necessary changes in consideration of the people’s views.

But officials who negotiated with religious leaders only faced stronger protests, and ended up introducing a clause to oblige religious organizations to file an annual report on religious activity expenses they disbursed with tax offices. This is meaningless, however, because tax authorities do not have auditing rights on religious organizations.

All in all, the codes on clergy income tax contain loopholes that threaten the principle of fair and transparent taxation. It is the consequence of the government giving into to hardline religious groups that are bent on protecting their vested interests.

The incomes of ordinary wage earners are called “glass purses” because of the high level of transparency of their taxable income. Civic groups and fair taxation activists should put up further pressure on the government and the National Assembly to raise the level of transparency of the clergy income and impose due taxes.