A burden on honest taxpayersConsidered a significant measure of financial support for salary earners, income tax deductions from credit card spending are scheduled to come to an end this year. In 1999, the government introduced the scheme to encourage card usage, which discourages tax dodging.
Credit card receipts allow the National Tax Service to effectively account for corporate revenue and personal expenses. The more a company relies on credit card spending, the harder it is to present false figures. The system’s sunset clause has been extended four times, scaling down the incentive each time. Last year, the maximum tax deduction was reduced to 3 million won ($2,663) from 5 million won.
According to the National Tax Service, about 5.58 million people, or 40 percent of the 14.25 million people that received monthly salaries last year, were beneficiaries of the tax break. Of them, those in the 20 million won to 40 million won tax bracket took up 42 percent. According to the taxpayer’s association, salary-earners saved on taxes to the tune of 1.2 trillion won.
If the main income earner in a four-member family who earns 40 million won received the 3 million won deduction on his income tax last year, it would have put an extra 340,000 won in his pocket.
But starting next year, families will not be able to count on that cash. It is no wonder the decision to abolish the system irks salary-earners.
The Ministry of Strategy and Finance said it might consider a fourth extension of the creditcard tax deduction scheme, as well as other tax incentive measures, when it proposes a tax revision this year. A member of the opposition Democratic Party has already submitted a bill proposing a two-year extension of the tax break.
In the past, the government annexed sunset provisions after set goals had been achieved. The purpose of the credit card tax deduction was to raise transparency in tax collection. The scheme helped to widen credit card usage, and at the same time it reduced the tax burden on salary earners. It made it harder for monthly salary earners to hide income from tax officials, making honest taxpayers of them.
The incomes of high-paying professionals such as medical doctors and lawyers are less transparent, however.
If the government believes it has attained its goal of increasing transparency in tax collection, it could let the regulation expire. But it should at the same time devise an alternative scheme to ease the tax burden on honest taxpayers.