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High-income earners, big firms to bear heavier tax burden

All News 00:37 December 06, 2017

SEJONG, Dec. 6 (Yonhap) -- The tax burden for high income earners and big firms will go up here in 2018, as parliament passed a budget bill that centers on President Moon Jae-in's efforts to help fund more welfare spending to carry out his key policy goals, data showed Wednesday.

Under the new budget bill, the income tax rate on people whose taxable income exceeds 500 million won (US$460,000) per annum was raised from the current 40 percent to 42 percent, with the comparable figure on those whose annual income ranges from 300 million won to 500 million won set at 40 percent, also up from the current 38 percent.

The 42 percent tax rate for the highest income earners marks the highest levied since 1995 when the corresponding figure was 45 percent.

The government estimates that 1.1 trillion won in additional tax revenue will be collected under the latest changes.

At the same time, the highest corporate tax bracket for businesses with a taxable income of 300 billion won or more was raised to 25 percent from the current 22 percent. Companies with income in the 20-300 billion won range will be subject to the current rate of 22 percent.

The finance ministry expects some 2.3 trillion won worth of additional corporate tax revenue to be collected on the corporate front.

The conservative Lee Myung-bak administration cut the corporate tax rate to 22 percent from 25 percent in 2009 to boost businesses struggling to muddle through the global economic crisis, which erupted the previous year.

Under the revised tax code finalized with the passage of the budget bill, tax benefits for research and development (R&D) spending by large firms will be cut, while smaller firms will get more tax benefits for such outlays.

The tax deduction rate for R&D spending by large firms will be cut to 0-2 percent from the current 1-3 percent range. But comparable figures for smaller firms will be raised to 25-40 percent from the current 20-30 percent, according to the finance ministry.

The set of changes in the tax code seems to be a drastic turnaround from the decadelong tax-cut policies by the two previous conservative administrations to boost Asia's fourth-largest economy, which has been in a protracted slump for years.

The conservative Lee Myung-bak government lowered the income tax rate in 2009 to encourage businesses to engage in more economic activities, while former President Park Geun-hye pledged to expand social welfare programs without raising taxes.

However, the incumbent Moon administration sees such policies as deepening income polarization and weakening the fiscal role in redistributing wealth. It claims it is time for rich people to pay more for job creation and social welfare expansion.

The government said revenue generated by the adjusted tax rates for wealthy people and businesses will be used to pay for President Moon's pledges on job creation and welfare expansion, which are estimated to cost 178 trillion won during his five-year term.

Moon's economic policies are based on the principle of "income-led growth," which calls for increasing household income and spending with the help of various policy tools to fuel sustainable economic growth.

Meanwhile, the government expects tax revenue to easily surpass the yearly target in 2017.

The South Korean government earlier set this year's tax revenue target at 251.1 trillion won. For the first nine months of the year, however, it has already collected 207.1 trillion won in taxes, equivalent to 82.5 percent of its stated goal.

The strong tax earnings are largely driven by an increase in corporate and income tax earnings, as well as a steady gain in the collection of value-added taxes.

Last year, South Korea also enjoyed a surplus in tax revenue as the total earnings reached 242.6 trillion won, exceeding the original goal by 9.8 trillion won and rising by a record 24.7 trillion won from a year earlier.

High-income earners, big firms to bear heavier tax burden - 1


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