New tax law revision to ease burden on low-income families

Posted on : 2007-08-23 11:32 KST Modified on : 2019-10-19 20:29 KST
Overall decrease in tax revenues expected, but will not jeopardize financial plans: Gov’t

Under the government’s new tax law revision, announced on August 22, South Korea’s ordinary workers and self-employed people will be able to see the tax burden reduced by 130,000 won to 150,000 won (US$138-159) per annum starting next year. Many of the people in this category could also expect to receive income deductions amounting to 2 million won for school fees, expenses for cafeteria meals and textbooks for their children.

The Ministry of Finance and Economy proposed the 2007 tax-law revision bill to the country’s Tax Reform Committee on August 22 with a plan to submit it to the National Assembly by the end of this year.

The revision, to be effective starting next year on January 1, focuses mainly on easing the tax burden on low- and mid-income earners, self-employed workers and small and medium-sized companies, the ministry said.

Under the revision, the ministry will levy an 8 percent tax rate on those earning 12 million won or less a year. Currently, the tax rate applies to those earning 10 million won or less a year.

For those with annual incomes of between 12 million won and 46 million won, the ministry will apply a 17 percent tax rate, while imposing a 26 percent tax rate on those with annual incomes of between 46 million won and 88 million won.

Currently, the 17 percent tax rate is applied to those earning 10 million won and 40 million won, and a 26 percent tax rate to those earning incomes of between 40 million won and 80 million won.

This is the first time in 11 years that the government has revised the range of income levels for each taxation rate.

Under the new taxation revision, a four-member family with an annual income of 40 million won would see their taxes reduced by 180,000 won a year, experts say. Overall, ordinary workers and self-employed people would pay 810 billion won and 300 billion won less in taxes, respectively, starting next year. This means that an average salaried worker and self-employed person could each see 130,000 won and 150,000 won less on their tax bills.

The revision also provides additional tax cuts for school fees, childbirth and adoption. Under the bill, anyone who gives birth to a baby or adopts a child could get an additional 2 million won income deduction. Also, small-sized company employees and self-employed people could receive further deductions on medical and educational expenses. The ministry estimates that around 330,000 out of the total 4.37 million self-employed would be eligible for the envisioned deduction benefits.

With the tax-law revision bill, the government is expected to see tax revenues decrease by a total of 3.5 trillion won between 2008 and 2013. The revenue fall is estimated at 1.6 trillion won in 2008 and 2009 and the loss will be around 100 billion won every year thereafter.

“The bill focuses mainly on stabilizing the livelihood of low- and mid-income earners,” a ministry official said. “We now have financial leeway since we have secured higher-than-expected tax revenues. We have also worked to prepare the bill so as not to jeopardize our mid-term financial plans.”