Lower Rates, Wider Base for Taxes

In a comprehensive tax-cut plan, the government will lower the tax burden on wage earners while taxing a greater portion of income earned by the more affluent. The government also said it would shift to an all-inclusive concept of taxation on income, transfers and inheritance in a longer-term plan. The government said the changes would expand the tax base, allowing for the future reduction of tax rates for middle-class and working-class households.

The plan is based on a commissioned report by the state-funded Korea Institute of Public Finance. The joint government and private sector commission on tax reform adopted the recommendations Monday.

The government said that the legislation to be proposed in September would allow more deductions for salary and wage earners. It would increase the deductible amounts allowed for medical and educational expenses and insurance payments, the government said. The plan would also review raising the minimum income subject to tax.

The proposal would exempt from capital gains tax the sale of real property within five years of purchase. Luxury homes that are sold for 600 million won ($463,000) or more would be excluded from the exemption. Property sold after five years or more of ownership would be taxed only on the gains derived in the period after the first five years. Taxes on the purchase of smaller residential properties located in Seoul and the outlying areas would be reduced by 25 percent.

The bill would also shift the tax burden associated with property from the acquisition to the ownership stage. Corporations can expect to benefit from lower taxes on capital gains from sales of real estate properties, as the new law, if passed, would extend indefinitely benefits currently due to expire at the end of the year.

The government will begin a review to lower the floor of unearned income subject to taxation. The plan arose from an analysis that found that more than 50 percent of the interest income earned on the 580 trillion won in deposits at financial institutions is completely or partially tax-exempt. The current floor is 40 million won.

All-inclusive taxation on income would move Korean law closer to the U.S. tax system. Current tax law specifies which income is taxable, but the change would make income from all sources taxable unless specifically excluded by a provision in the law. The government said the change is a long-term consideration that will require more than five years to complete. But the concept will be introduced partially as early as this year in an abbreviated form, the government said. That will group income from sources similar in nature and apply the all-inclusive concept by specifying exemptions by individual categories.

by Song Sang-hoon