New tax breaks to aid broke firms

The government will write off up to 5 million won ($4,011) in taxes that bankrupt small business owners owe the government, and tenants will be entitled to a 3 million won tax deduction on their weolse, or monthly rent, according to the Finance Ministry yesterday.

The plans are part of a series of tax-benefit measures for low-income earners worth 1.4 trillion won in total. The ministry said it will announce details of a further tax-related package worth 1.6 trillion won early next week.

The measures are part of the 2009 tax reform plan whose size and details will be disclosed fully by next week.

Last year, the government announced a revised tax system that it said will return 33.9 trillion won to the public by 2012. The 2009 plan is separate from the 2008 plan.

The latest tax reform is focused on helping small businesses, the ministry said.

The government is shifting its expansionary policies from direct money spending to supporting measures to boost private sector investment, which it sees as the real spur to a full-fledged recovery of Asia’s fourth largest economy.

Earlier this year, the government earmarked 17.3 trillion won for a supplementary budget.

A key part of the package yesterday is exempting former small business owners of the obligation to pay overdue taxes on the condition they restart their bankrupt businesses.

Business owners whose average annual income over the past three years was 200 million won or less will be cleared of 5 million won in overdue taxes, including business income tax and value-added tax, if they reopen their businesses by the end of next year, the ministry said.

“When [business owners] want to reopen, they have trouble getting loans because of their tarnished credit records,” said Yoon Young-sun, deputy minister for tax and customs, while briefing reporters. “Our plan gives them a second chance.”

The ministry said 400,000 people still individually owe up to 5 million won in taxes, and the ministry claims the new tax break will generate 200 billion won in benefits.

In addition, existing tax deduction programs for small businesses scheduled to expire this year will be extended by two to three years, the ministry said, a move that will return 1 trillion won to businesses owners, it said.

The government also said it will give tenants a tax break on weolse to help household expenditure.

Forty percent of the monthly rent tenants pay, with a ceiling of 3 million won per year, will be tax deductible, the ministry said.

The new deal applies to primary income earners in multi-person households who earn 30 million won or less per year and who live in homes that are 85 square meters (914.9 square feet) or smaller.

The new deal also includes tax deductions on deposits to savings accounts for house purchases, the ministry said.

By Moon Gwang-lip [joe@joongang.co.kr]