The South Korean government in its second tax code revision under liberal President Moon Jae-in proposed to triple the childcare and employment subsidies for low-income bracket over the next five years while continuing on with higher levies on super-rich individuals and companies to narrow wealth disparity and promote sustainable growth.
Under the tax code revision outline announced on Monday, which requires approval from the cabinet late August and review by the National Assembly on Aug. 31, tax benefits for low income families will be widened to 15.4 trillion won ($13.8 billion) over the next five years, up nearly three times from the subsidies of 1.8 trillion won paid out last year. Next year, the government will provide 3.8 trillion won worth earned income credit to 3.34 million households and 900 billion won worth of child tax credit to 1.11 million households, totaling 4.7 trillion won, out of its tax revenue.
Due to the increased subsidies for the low-income households, tax revenue will contract by nearly 3 trillion won over the following five years or 15 trillion won in total, according to the Ministry of Strategy and Finance. It will be the first time for the tax revenue to fall since 2008 when the government under pro-business Lee Myung-bak administration delivered tax cuts for large enterprises and rich individuals.
While lowering the tax burden on the working class, the government plans to continue increasing levies on the top-income bracket to ease inequalities. Tax on real estate properties valued 600 million won or above will be increased by up to 0.5 percentage point and an additional 0.3 percentage point tax will be levied on those who own three or more houses. Tax deduction benefits for multi-house owners without landlord registration will be cut in half to 2 million won and income above 20 million won from house rentals will be taxed from next year. The government estimated the change in tax code for properties rentals would increase the number of taxable individuals to 240,000 and tax revenue by 74 billion won.
Meanwhile, the government will tighten its watch over offshore tax evasions by raisings penalties on unreported real estate property investments abroad to 10 percent of the purchase/sale value.
To help bolster economic growth, the government will continue to offer tax incentives to employers complying with its agenda of creating jobs and leading innovations. Companies starting a business in regions suffering from ongoing restructurings in shipbuilding and shipping sector will be given a full deduction on corporate and income taxes for five years. Employers hiring youth for a full-time position will be offered 500 million won per person.
The minimum research and development spending requirement for tax deduction will be lowered to 2 percent from current 5 percent against total revenue if investments are made for next growth engines such as blockchain technology and quantum computers.
The coal-fueled power consumption tax will be raised to 46 won per kilogram from the current 36 won to promote power generation of cleaner LNG fuel. Environmental charges on LNG will be cut to 23 won per kilogram from 91.4 won.
The requirements for getting a license for duty-free shop operation, which had been under constant criticism for favoring certain large conglomerates, will be eased. A large company that earns 200 billion won or more in revenue compared to the previous year or attracts 200 million additional foreign customers will be extended in its business license while small-and medium-sized travel retailers will be allowed to open a new outlet anytime.
By Moon Jae-yong and Cho Jeehyun
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]