중앙데일리

Why is the government returning some tax money?

Payouts may prompt spending despite high oil prices.

July 01,2008
What comes to mind when you think of taxes?

Well, not very many people enjoy paying taxes.

But as the old saying goes, only two things in life are certain ? death and taxes. Taxes are unavoidable because they are the main revenue source of the government. The government uses the money from taxes to pay for state affairs and services, such as public schools and keeping the public safe.

Now, for the first time, the government has announced that it will refund some of the tax money that people paid.

Why did the government decide to refund taxes to the public? The simple answer: high oil prices.

The government said this tax refund is aimed at easing the public’s burden of paying so much for oil.

West Texas Intermediate, a world oil price benchmark, was priced about $95 per barrel (about 159 liters) at the end of last year.

However, the oil price has skyrocketed to $138 per barrel as of earlier this month. That was when the Korean government announced its decision to refund taxes to the public.

Since Korea is not an oil-producing country and its dependence on oil imports is remarkably high, the soaring oil price deals a huge blow to the nation’s economy.

The nation’s companies and individuals have a hard time making a living because prices for everyday goods and activities are closely linked to advancing oil prices, such as transportation fees and heating and cooling costs.

About 30 percent of Koreans will benefit from the government’s tax refund. Salaried workers who earn less than 30 million won ($28,625) per year and self-employed workers who earn less than 20 million won per year will receive 240,000 won from the government.

When you consider 240,000 won over the course of the year, it’s actually not a large amount of money; it amounts to only 20,000 won per month.

Salaried people whose annual income is between 30 million won and 36 million won and self-employed people who earn between 20 million won and 24 million won will receive between 60,000 won and 180,000 won.

Those figures break down to 5,000 won to 15,000 won per month.

While these payouts might seem pretty small for individuals, for the government, the total amount of refunded taxes is estimated to exceed 3 trillion won.

This means the government will step outside the bounds of its budget by about 10 trillion won in issuing the refunds. This aid will go to people hit hard by high oil prices, such as workers in public transportation, farming, fishing or trucking.

With such a large influx of money into the local economy, the temporary added cash flow is expected to temper commodity prices and consumer sentiment.

With the stimulus of the tax refund, the government expects to see the nation’s economic growth jump 0.2 percent and prices of everyday necessities gain 0.1 percent in the latter half of this year.

Some industry insiders, however, see it differently, saying that the tax refund may not be as effective as the government hopes, or that it may even cause trouble.

Others say 10 trillion won should be used in other ways. The amount of money that the government intends to spend on tax refunds, 10 trillion won, could be used to build 10 large thermal power plants.

With this 10 trillion won, Korea could buy into about 10 mining areas overseas. One group of experts says the money should be spent in a more constructive way for the public.

Responding to such criticism, the government says the tax refund should not be criticized because it is meant to improve the public’s living conditions.

Meanwhile, opponents of the tax refund insist the government should do its utmost to secure natural resources and raise our efficiency in the use of energy resources, rather than give out a small amount of money to people as a quick fix.

Some even raised a question about the tax refund’s equality.

For example, if a husband earns more than 40 million won per year, and his wife does not work, the couple cannot receive any of the aid from the government.

People who earn more than 36 million won won’t receive a tax refund.

But when a husband earns 30 million won and a wife earns 30 million per year, both will receive 240,000 won each from the government.

In total, the couple will get 480,000 won.

The prospect that people who don’t pay taxes, or tax evaders, would benefit most from a tax refund has also caused controversy. On the other hand, people who pay a relatively a large amount in taxes are not eligible to receive a tax refund.

According to the government, tax refunds are aimed to help people who earn only a little bit of income, which is why it did not offer refunds to people who earn a lot of money.

The unemployed and retirees, who might suffer from harsher financial difficulties than people who have low incomes, are not included among those who will receive tax refunds.

Korea is not the only country to refund taxes. The United States and Japan have refunded taxes to their taxpayers. But refunds from these countries’ governments have a different purpose than Korea’s.

In order to tackle the sluggish economy and boost chronically weak consumer sentiment, Japan gave away certificates worth 20,000 yen ($187) to people in low-income households. The Japanese government believed that the certificates would help encourage people to spend.

The United States started to give $100 billion in economic stimulus payments to about 45 percent of its population last month. An individual taxpayer receives between $300 and $600, while a household gets between $600 and $1,200. A household with a child under 17 receives an additional $300.

The main purpose of these payments is to stimulate activity in these countries’ stagnating economies hard hit by subprime mortgage woes. The United States also refunded taxes to the public after the 9/11 terrorist attacks in 2001.

Disputes have arisen over the efficiency of tax refunds and whether they are really useful in reviving an ailing economy. As the United States began making payments, consumer spending increased by about 1 percent last month from a month ago. It was twice as high as experts’ predictions.

But only a few analysts think these tax refunds will be able to revive an unhealthy economy in the long run.

The Los Angeles Times and Bloomberg News recently conducted a survey among Americans who received stimulus payments from the U.S. government. The survey said people who received money from the government tended to pay debts or save the money, rather than spending it on goods and leisure activities.

Only 32 percent said they would spend their money for shopping.

Korea is the only country that decided to refund taxes because of high oil prices.

Other countries have other plans to combat skyrocketing oil prices. The United States said it will lower its dependence on oil-related products and impose regulations on oil price speculation.

Japan decided to increase usage of reusable energies.

Other countries have decided to head in exactly the opposite direction. India, Indonesia, Taiwan, Malaysia and Thailand will lower oil subsidies because of financial difficulties their central governments now face.

Under any situation, the government should be serious about refunding taxes because one consequence of this move could be higher inflation.

In addition, once the government starts refunding taxes, politicians may press the government to hand out money every time something goes wrong in order to appease the public.


By Kim Sun-ha JoongAng Ilbo [so@joongang.co.kr]


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