Tweaked tax bill offers relief to farmers, SMEs

From next month, young people aged between 15 and 29 who join small- and medium-sized enterprises (SMEs) will be exempt from paying income tax for three years, the Ministry of Strategy and Finance said yesterday.

Mothers with newborn infants will also escape paying value-added tax (VAT) when they stay at postpartum care centers after giving birth, in a move designed to lighten the burden of expensive child care fees.

Low-income households that receive government subsidies will also be exempt from VAT when they bring their pets to veterinary clinics as part of the ministry’s revisions to the nation’s tax laws, which put a new accent on supporting regular households and small firms.

There have been growing concerns that the poor state of the global economy will tighten the screws on Korean households and businesses this year. High inflation throughout last year has also caused people to draw their purse strings and adopt a more frugal outlook.

“We will legalize the revised laws and enforce them from next month,” Baek Woon-chan, chief of the ministry’s tax division team, told reporters yesterday.

The National Assembly passed a revised tax bill last month, while the latest amendments still require rubber-stamping by the president.

The revised bill, including income and corporate taxes, was put together by the ministry based on President Lee Myung-bak’s emphasis on creating a “fair society” based on “shared growth.” It included a so-called “Buffett tax” that imposes higher taxes on the super wealthy.

The changes announced yesterday include revised taxes that support Korean farmers, who fear what lies in store when the recently signed Korea-United States free trade agreement comes into effect this year and protective tariffs melt away. Farmers suspect their businesses will be affected by the influx of imported grains, fruit and meat. The Korus FTA has been approved by both sides.

To ease their concerns and minimize the impact of the trade deal on the local agricultural industry, the government said yesterday it will offer farmers more tax relief on income they earn from side jobs.

Previously, those operating farms on a part-time basis with fewer than 30 cows and 500 pigs were eligible for tax-free incentives, but the revision enlarges the scope of this entitlement to farms with 50 cows and 700 pigs.

Meanwhile, farmers who earn up to 20 million won ($17,200) in annual income can enjoy tax benefits from next month, up from the previous ceiling of 18 million won.

Additionally, small firms that are required to issue certificates of origin documents before exporting their products to the U.S. based on the Korus FTA will also receive deductions.

While tax support for average-income households has been enhanced this year, high-income earners or large companies will be subjected to higher taxes.

The controversial “Buffett tax” will compel people who earn over 300 million won a year to pay 38 percent of this as tax, up from 35 percent at present.

The ministry also said it will impose a limit on the retirement pay that executives of large companies receive.

By Lee Eun-joo [angie@joongang.co.kr]