Taxing concerns as rich targeted

Both the ruling and opposition parties are campaigning for the same means to fund increased welfare spending - tax hikes. They suggest raising income and corporate taxes, and slamming new taxes on chaebol. But while taxation is a necessary evil to drum up funds, squeezing them out of a certain class or group can trigger resentment and resistance. Any increases should be more broadly applied based on the principles of fairness and efficacy.

Before resorting to tax increases, the government and politicians must stitch up various legal loopholes first. They should try to scale down the underground economy, which reportedly accounts for more than 27 percent of the country’s gross domestic product. In fact, Korea’s shadow economy is bigger than that of beleaguered Greece and ranks as the fourth-largest among OECD member economies. As such, authorities must strive to collect appropriate taxes from high-earning professionals and the self-employed.

They should also fix various discrepancies and inefficiencies in terms of provisions such as benefits and exemptions. The latter last year reached 30.6 trillion won ($27.3 billion), or 14 percent of total national tax. Revenue from taxing those with higher incomes stood at 770 billion won in 2011, compared to 2.4 trillion won in tax cuts and exemptions for farmers.

However, consumers resisted the government’s move to abolish tax benefits on long-term mortgage savings, while the National Assembly last year extended various tax exemptions and cuts by another three years. If such problems are fixed first, the tax base could be raised much more efficiently.

Before this is done, though, the sources of tax revenue need to be broadened. Some 39 percent of the working class and 41 percent of the self-employed do not pay any tax on their income. But even low-income earners should make some contributions to the state, no matter how small, if everyone is to enjoy universal welfare benefits. Raising corporate taxes also runs counter to global trends, as many countries are lowering their rates to promote companies’ competitiveness and encourage them to hire more staff.

Although some people argue than Korean tax rates are lower than in other advanced economies, the burden has been rising in recent years. Sharp tax hikes could also negatively impact consumption and slow the economy. Before resorting to easy tax increases, current tax revenue sources and rates must be rationalized and loopholes corrected.