[EDITORIALS]A Tax System That Doesn't Work

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[EDITORIALS]A Tax System That Doesn't Work

The announcement that the government collected much larger income tax revenues from wage earners last year than it had originally projected has made wage earners furious. The Ministry of Finance and Economy, said it raked in 2.34 trillion won ($1.83 billion) more in taxes on earned income last year, up 56 percent from its original forecast. The excess tax revenues carry two problems. One has to do with equity. Wage earners complain that their share of taxes is unfair. The other problem is the tax system and administration, which failed to catch up with the changing taxation environment.

In contrast with income tax revenues from wage earners, the income tax revenues from self-employed businessmen was 8.7 percent less than the original forecast. No explanation from the government could satisfy wage earners.

A change in the environment of earned income taxation last year had already been foreseen. Since the 1997-98 foreign exchange crisis, more companies have introduced performance-based wage and bonus systems. In addition, a number of firms, which had paid their workers money apart from salary to meet entertainment and other expenses, have begun to add the money to workers' annual salaries. Accordingly, the number of high-income earners has jumped. But the tax system failed to get in step with the change.

A more serious problem is that the new tax bill, which the government recently announced, included few measures to reform earned income taxation. The government plans to cut tax rates on wage earners by about 10 percent and raise marginally the upper limit of tax-free income.

But with the insufficient measures, the government will face another dispute over excess tax revenues from wage earners.

We urge the National Assembly, a majority of whose seats are now held by the opposition parties, to reexamine taxation on wage earners, when it deliberates the new tax bill. The assembly should change the current structure of earned income taxation, which applies different tax rates on four brackets of earned income. It also should expand deductions of special expenses from income taxes on wage earners.
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