Updated January. 02, 2012 05:07
The National Assembly has passed a bill on the introduction of a 38-percent tax rate on the highest income bracket of 300 million won (259,000 dollars) or more. The bill was approved in a plenary session on Saturday, just 10 minutes before the start of the New Year.
The parliamentary strategy and finance committee concluded revision of the Income Tax Act by putting the brakes on a planned tax cut for the rich by curbing the reduction of the tax rate on such people.
Mindful of votes ahead of April`s general elections, however, ruling and opposition party lawmakers revived the so-called Korean Buffett tax at the last minute. Not only the government but also Park Geun-hye, chairwoman of the ruling Grand National Party`s emergency committee, opposed the bill but to no avail.
Certain members of the opposition claimed that the tax hike is a mere formality since it is applied only on 0.17 percent of income earners. Yet others warn that the decision has reversed tax policy from cuts to hikes and that this will fundamentally shake up national tax policy going forward.
○ Parliament surprisingly approves tax hike on the rich
The National Assembly had originally planned to approve a revision bill to the Income Tax Act on keeping the tax rate on the highest income earners (88 million won or 76,000 dollars or more) at 35 percent, which had been approved by the Strategy and Finance Committee Wednesday.
Yet 28 ruling party lawmakers, including Kim Sung-sik and Chung Tae-geun who bolted from their party, and pro-Lee Myung-bak legislators teamed up Friday with 22 lawmakers of the main opposition Democratic United Party to submit a revision ball on the introduction of the highest income bracket of 200 million won (170,000 dollars) or more, pressuring their parties` leaderships.
Eventually, the ruling party held a general meeting of lawmakers around 5 p.m. Saturday and adopted as its party platform a re-amended bill that changed the threshold of the income bracket to 300 million won or more.
Park opposed changing the highest income bracket or raising the tax rate but in the wake of the decision, she will inevitably have to change her policy direction. Her party apparently chose the tax hike on the rich despite her opposition because of the need to shed its image as a party for the rich ahead of the general elections in April.
Prior to the general meeting of lawmakers, ruling party lawmaker Chung Du-eon, who claimed the introduction of the Korean Buffett tax that day, strongly urged floor leader Hwang Woo-yeo for a "free referendum," saying, "A tax hike is a global trend and should be done first on the rich.
A pro-Park lawmaker said, The tax hike will have little economic effect, increasing tax revenue by just 770 billion won (660 million dollars), but we took a political approach."
○ `Eye of typhoon` to shift tax policy
Rep. Lee Yong-sep of the Democratic United Party objected to the bill Sunday, saying, "Since people who earn 300 million won (259,000 dollars) or more only account for just 0.17 percent of income earners, it doesn`t conform to the intent of the Buffett tax, which wants to raise the tax on the top 1 percent (of income earners), and will have little effect."
The government has a differing view, however. Since the debate over raising taxes on the rich has generated initial results ahead of the general and presidential elections in the New Year, the threshold income level (300 million won or more) can be adjusted downward at anytime, and there is also ample room to increase the tax rate (from 38 percent) as well.
Since the two-year delay of the planned tax cut for those in the previous top income tax bracket in 2010 constituted the start of the move to revoke the "tax reduction plan for the rich," and hence tax hikes have effectively started, the government has clearly kicked off its policy drive to further increase the tax burden.