| The government concluded its proposal for overhauling its tax code Thursday to be submitted to the National Assembly for approval. The proposal calls for phasing out much of income deduction programs and replacing them with tax deductions and strengthening tax support for promising service industries. In addition, the proposal includes easing taxation on small and medium-sized businesses, expanding tax deductions for those who inherit family businesses, expanding the earned income tax credit and introducing child tax credit.
As the existing income deduction programs provide bigger benefits for higher income earners, replacing them with tax deductions is seen reasonable. The Ministry of Strategy and Finance projected that the change would reduce tax burdens on 72 percent of wage or salary earners, while increasing those on the top 28 percentile. However, more than 4.34 million salaried workers will see their tax burden increase next year. It would be fair to say that a considerable number of them are middle-class salary earners, rather than high income earners. The National Assembly needs to complement the standard more realistically during the legislation process.
The government also decided to impose taxes on incomes of monks, priests and other religious leaders starting in 2015. Taxation on religious leaders can no longer be delayed for the sake of fairness with people engaged in other occupations. Although the planned taxation on religious leaders would not contribute significantly to increasing tax revenues, the issue should be clearly concluded this time for fairness` sake. The decision to impose taxes on government employees` miscellaneous compensations and wealthy farmers` annual income exceeding one billion won (898,876 U.S. dollars) would also help enhance fairness in taxation and strengthen the tax base.
The finance ministry proposed to lower income deductions for credit card uses to encourage consumers to use debit cards or cash receipts. The government also attempted to do so last year, only to fail due to strong protest from credit card users. The government should make a decision after weighing the advantages and disadvantages of reducing income deductions for credit card uses.
The government projects that the proposed tax code overhaul would increase its tax revenue by nearly 2.49 trillion won (2.2 billion dollars). Tax increases are inevitable as the size of the economy grows larger and the demand for fiscal spending increases. The government has to increase its tax revenue while trying to reduce spending at least in order to maintain state finances sound. However, it is not desirable that the tax code overhaul increases tax burdens mostly on middle-class salary earners whose incomes are transparently exposed. The National Assembly should scrutinize and complement the overhaul proposal in order to catch two hares -- fiscal soundness and tax fairness.