Prudence needed in tax reform

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Prudence needed in tax reform

The tax code needs fixing if the country aspires
to become a welfare state that provides for the basic
well-being of its citizens in such areas as education,
housing, health care and other public services. Last
year, the government collected 2.8 trillion won
($2.56 billion) less tax revenue than expected due
to slow growth and sluggish consumption. It was
the first time in eight years that tax revenue fell
below expectations.
Tax collection had topped estimates in past years
thanks to solid economic growth and new revenue
from increased credit card spending. But the tax
outlook remains poor this year as the economy is
estimated to muddle along at a growth rate of 2
percent with few signs that consumers will increase
spending. Even if tax authorities crack down on the
underground economy, changes in the code may be
inevitable to sustain revenues.
Careful study is a prerequisite to any revision of
the tax code. Side effects can pop up in unexpected
places because the economy has become more connected,
complicated and diversified. After authorities
lowered the base for the financial asset income
tax to 20 million won from 40 million won, many
homemakers and other adults had to start paying for
their own public health insurance because they lost
dependent status in the employer-subsidized health
insurance of their spouses or parents. The lowering
of the tax exemption limit for private pensions to
200 million won affected the capital market. Money
flowed into tax exemption products and similar private
pensions.
Taxation is a double-edged sword. IKEA moved
its headquarters to Belgium to avoid Sweden’s high
inheritance tax. French actor Gerald Depardieu applied
for Russian citizenship after Paris announced
plans to hike income taxes on the richest to 75 percent.
Another French billionaire, Bernard Arnault,
the chief executive of luxury giant LVMH that includes
Louis Vuitton and Christian Dior, is allegedly
seeking Belgian citizenship. British authorities
had to promise a one-time tax exemption to invite
gold medalist sprinter Usain Bolt to run in the country.
Taxes can scare away lucrative businesses, entrepreneurs
and celebrities. If we wield tax clout
rashly, top Korean companies and individuals could
take their money elsewhere. Instead, public insurance
costs and other rates could shoot up to make
up for decreased tax revenue.
Changes in the tax code should not be political.
They must be crafted intricately and masterfully to
accommodate a society mired in slow growth and
low interest rates.


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