Credit card tax deduction is extended 3 years

The Blue House, the government and the ruling party have agreed to extend a credit-card tax-deduction program, which was supposed to end this year, for another three years.

“While the tax refund on credit-card spending was to end by the end of this year, considering that it has lowered the tax burden of workers, we have agreed on extending it for another three years,” said Kim Chung-woo, Democratic Party lawmaker on the National Assembly’s Strategy and Finance Committee on Wednesday. “We have decided in principle to maintain the current level of the tax refund.”

The lawmaker said the government will include the extension of the credit card tax deduction in its tax reform bill next year.

Kim denied rumors that the government was previously considering an end to tax deduction on credit card spending to push people to switch to its “Zero Pay,” a payment system where the businesses are charged no commission.

“Zero Pay was not considered in making the decision,” Kim said.

The extension of the tax deduction on the credit-card spending program came a few days after Finance Minister Hong Nam-ki created considerable confusion about the issue, first saying the government will be taking steps to reduce the tax refund this year and then retracting his comment.

On March 4, Finance Minister Hong said the government will review tax benefits and tax exemptions, including the tax deduction for credit card spending.

“The government will comprehensively review regulations, like the credit card spending tax deduction, which has already served its purpose,” Hong said.

It was his first comment on the credit card spending tax program.

The tax deduction was first adopted by the government in August 1999. It allows for a deduction of 15 percent of credit card spending above 25 percent of a person’s annual income, capped at 3 million won ($2,649).

One of the purposes of the deduction was to reduce the tax burden at a time when the country was still suffering from effects of the global financial crisis.

It was also designed to increase spending transparency.

The credit card spending tax refund has been extended eight times over the past 19 years. The last time was last year, when another year was added to the program, shorter than the previous extensions of two to three years.

The refund rate dropped from the initial 20 percent to 15 percent in 2012.

The government has been promoting other financial payments systems by allowing for larger deductions. While the tax deduction is 15 percent for credit card spending, for debit cards it is 30 percent and for cash receipts is 30 percent. Zero-Pay payments attract a 40-percent deduction .

A week after public backlash to the finance minister’s comments, the ministry backpedaled, saying it is reviewing the program and considering an extension and not planning to end it by the end of the year

The public said a move made to increase government tax revenue by reducing the tax deduction would only harm people in the lower income brackets.

It is estimated that if the tax refund on credit card spending were abolished, the government would be able to collect an additional 2 trillion won in taxes.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]