[EDITORIALS]A Better Way to Cut the Tax BurdenThe news that the government is considering ways to lighten the tax burden on wage earners is welcome. Since the 1997 Asian financial crisis, the income distribution has been distorted, to the greater sacrifice of the middle- and low-income brackets. It is the government's responsibility to lift some tax weight from them.
The issue is how to do it. The government is reviewing raising the caps on tax deductions for allowable expenses, such as medical or education costs. Such a scheme is not cheered by experts or by the opposition party. Tax deductions are by nature regressive: Regardless of income level, taxpayers can get deductions as long as they submit evidence. Moreover, the move would shrink the base of taxpayers. Even now 46 percent of wage workers would not earn enough to pay taxes. An expansion in categories of tax deductions, amounting to more than 10, will only add complexity to the already complicated tax system.
The fundamental solution is to increase the proportion of tax-paying workers while decreasing tax rates. The government needs to re-examine the current tax system, under which the highest income levels pay at a 40 percent rate. The taxation system is too complicated compared with other countries, and the highest tax rate is higher than those of comparable countries. The government seems to oppose a cut in tax rates because it expects large public outlays next year, including redemption of principal and interest on public borrowings. But it is unacceptable for the government to replenish its coffers by collecting more taxes from the middle- and low-income households. Instead, it needs to resort to such measures as reducing various tax exemptions, restructuring the public sector or enhancing the efficiency of government spending.
If the government focuses on enlarging tax deductions, ignoring more fundamental solutions, it will not escape the criticism that it is giving away sweets for next year's general election. The government may need to use this opportunity to review the overall taxation system, taking into consideration changes in the world economy, the global trend of tax cuts and expansion in tax resources thanks to widespread use of credit cards and receipts.