[EDITORIALS]New Tax Bill Is Only a Good Start

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[EDITORIALS]New Tax Bill Is Only a Good Start

The government's tax bill for next year, announced Monday, is generally unsubstantial, though its purpose looks fair. The government focused excessively on a tax cut for wage earners, with an eye on the presidential election next year, and failed to follow principles of tax reform based on the current and future situation of the Korean economy.

The public hoped and the government planned for two things to be achieved through tax reform. One is "Lowering tax rates and expanding the tax base." The principle of "tax for all people" requires expansion of the tax base while lowering tax rates.

The other thing is stimulating the sluggish economy. The government plans to change the tax system to boost the Korean economy, which is in its worst contraction since the 1997 foreign exchange crisis. The saying "lowering tax rates and expanding tax base" is emphasized whenever the government revises the tax laws. And the government, the ruling and opposition parties have already agreed in principle on a stimulus package for the economy through tax law changes, though there have been conflicts over the scale of the tax cut and other matters.

The principle of lowering tax rates and expanding the tax base was only partly reflected in the new bill. Since President Kim promised a tax cut for middle- and and low-income workers in his speech celebrating August 15 Liberation Day, the scale of the tax cut has become larger than the government originally planned.

But, the new tax bill is weak on tax base expansion, with the ratio of taxpayers, which is currently only 54 percent, likely to fall further, because the upper limit of tax-free income has been raised. In addition, the ratio of exposed income of individual business owners is far smaller than the ratio of exposed income of wage earners. The grievances of tax payers, which will naturally arise from the problem, will be much larger than any satisfaction from tax rate cuts.

Experts have recommended that the government merge and abolish some complicated tax rules so that an ordinary person could easily determine what and how much taxes he should pay. But the recommendations are not reflected into the new bill. In drawing up the new tax code, the government did not try to reform the fundamental framework of the tax system, such as adjusting the division between national taxes and local taxes, and realigning objective taxes in line with to the development of the Korean economy.

Another shortcoming is the failure to demonstrate the ability to stimulate the economy. Though the government plans to reduce the tax burden on companies through abolishing special taxes on real estate properties owned by corporations, it will not cut corporate income tax rates. Accordingly, the government is open to charges that it is doing itself proud by giving only a small gift. The government must have been wary of reducing its tax revenues. But it should have cut corporate income tax rates, considering the aim of the new tax bill. The government must reconsider reductions in corporate income tax rates, even in exchange for a reduction in the number of tax-free items.

The scale of tax cuts, which totals 1.9 trillion won, including income tax reductions, is also a problem. There are doubts that such a tax cut scale would satisfy taxpayers in a situation in which the government is spending 6 trillion to 7 trillion won to support a debt-ridden company. We hope that those problems will be seriously discussed in upcoming regular sessions of the National Assembly.
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