An overhaul of the tax code for the nation
The heavy taxes imposed on the wealthy by the former Moon Jae-in administration will soon be lifted. As part of the tax code overhaul plan unveiled last Thursday by the Ministry of Economy and Finance, the Yoon Suk-yeol administration is proposing sweeping tax cuts to boost domestic demand and market-led growth. private sector.
First, middle to working class income tax will be lowered. The income base for two lower tax rates for employees whose annual salary is 88 million won ($67,050) or less will be increased by 2 million won. Those earning 50 million won per year will save income tax of 360,000 won per year, and those earning 78 million won per year will save 540,000 won.
The top corporate tax rate is also down. The top tax rate that was raised to 25% under the previous administration would drop to 22%, but it is still higher than the average of 21.5% for member countries of the Organization for Economic Co-operation and Development. A lower tax rate could encourage more investment in Korea by domestic and foreign companies.
The threshold for small and medium enterprises subject to the 10% special tax rate will be raised from 200 million won to 500 million won to expand the tax benefit in hopes of persuading small businesses to increase investment and hires. The surcharge imposed on multiple owners will be removed to impose a tax based on the total value of the properties instead of the number of houses they own.
The cuts would reduce tax revenue by 13 trillion won a year from next year to 2026. Managing public finances so as not to widen the budget deficit will be a challenge for the new administration. The Conservative government is under pressure to address fiscal health which was made worse by massive spending under the previous government. Radical deregulation may be the only realistic solution for fiscal health. If regulations are removed, businesses can increase investment and income, which in turn can increase tax revenue. If hiring expands, rising household income could also help boost domestic demand.
The tax review proposal requires the approval of the Democratic Party (DP)-dominated National Assembly, which opposes tax rate cuts for corporations and wealthy individuals. Park Hong-keun, leader of the DP floor, has sworn to block the movement. But the corporate tax rate can affect the competitiveness of enterprises in borderless competition. Finance Minister Choo Kyung-ho pointed out that more than 60,000 jobs had been lost overseas due to high tax rates for the corporate sector. The DP could use its majority power against the new government suffering from a low approval rating. But he should not oppose the rationalization of the system of tax rates aimed at revitalizing the economy.