Korean Tax Policy Favors Increasing Progressivity

서지정보

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· 저자명 : 이미현

초록

With the growing demand for increased social welfare benefits which started to surface in recent years, the welfare budget demands started to increase steeply so that maintaining the nation’s fiscal soundness has become another major goal of Korean tax policy these days. Against this backdrop, a large portion of recent tax amendments in Korea have been geared towards collecting more taxes to increase tax revenue. This article covers some of these recent changes in the following areas having rather significant impact on the economy and eventually on the taxpayers: (1) Income Tax – In order to reduce tax burdens as part of moves toward creating a more favourable investment and business environment and also encouraging more consumption and job creation, the Income Tax Act of Korea was amended by the end of 2008 to lower the income tax rate of the highest bracket from 35% to 33%, the amended rate to become applicable for the income accrued on or after January 1, 2010. However, this amendment had been fiercely challenged as a tax reduction benefiting the rich only so that just before the contemplated tax reduction became effective it was repealed. In addition, a higher bracket of 38% was additionally created by the end of 2011.
(2) Corporate Income Tax – The Corporate Income Tax Act Amendment was amended in 2008 to reduce corporate income tax for higher bracket from 25% to 22% starting from 2009 and from 22% to 20% starting from 2010, however, just like the income tax amendment, such amendment was fiercely challenged and Corporate Income Tax Act has been amended a number of times to reflect such voice. According to the most recent amendment of the Corporate Income Tax Act which took place in December 2011, the reduced rate 20% is applicable only to corporation with a tax base equal to or less than 20 Billion Korean Won and the 22% continues to apply to corporation with a tax base more than 20 Billion Korean Won;(3) Gift Tax Act - Recent developments of the Gift Tax Act can be summarized as “No free transfer of wealth without tax”. In the past, the Gift Tax Act was interpreted to be based on a positive system so that a free transfer of any economic value will be subject to gift tax if it is made in the form and manner as specifically provided in the Gift Tax Act as a tax triggering event. However, since the introduction of the notion of the “comprehensive gift” into the Gift Tax Act in 2004, there have been attempts to impose gift tax on certain transactions eventually resulting in indirect transfer of some economic value based on the ground that such transfer of wealth constitutes “comprehensive gift” to the transferee despite the fact that such transactions do not fall within the scope of gift tax triggering events specifically provided in the Gift Tax Act. Moreover, the December 2011 Gift Tax Act Amendment introduced a new legislation to impose gift tax on the controlling shareholders of a company for profits of the company arising from the transactions with affiliated companies.
(4) Contemplated Introduction of Robin Hood Tax A financial transactions tax for trade in stocks has been existing in Korea since 1962 under the name of the securities transaction tax (“STT”) but dertivative transactions are not subject to STT at the moment. In August 2012, the Ministry of Strategy and Finance (“MOSF”), in an effort to expand the scope of the current financial transaction tax to include certain derivative transactions, submitted a tax bill (“2012 Tax Bill”) to the National Assembly proposing that a transactions tax should be imposed on certain derivative transactions dealing with certain designated derivatives products indexed to stock prices. Due to the strong opposition by the financial industry, 2012 Tax Bill did not pass the National Assembly in 2012. However, in its business report to the President on April 3, 2013, MOSF made it clear that it has decided to push ahead with the enactment of transaction tax on derivative transactions once more.
Although many amendments towards increasing tax revenue are already in place, the opposition parties are still demanding a more radical increase of tax for wealthy individuals and the large companies to generate more tax revenue to be used to increase social welfare benefits to ordinary people and fight poverty across the country. Provided that tax increase on wealthy individuals and large companies is kept within the limit they can endure, increasing tax would be the right measure to ensure ongoing funding for social welfare programmes far into the future. If it goes beyond that limit, it may have the most undesired effect, minimizing economic growth and provoking major job losses when everybody agrees that the priority now is to create jobs. At the moment, Korean economy is slumping and, what is worse, there are fears in the market that the Korean economy may languish into a long-term depression like Japan. Against this background, so far the Korean government has been showing a very cautious attitude as to any further tax increase, especially in cases of taxes directly affecting business. It remains to be seen which path Korea will eventually take in the long run, however, considering the current economic recession, it will, at least, take some time to raise the corporate income tax rate above the current applicable rate, if that ever happens at all.

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