Tax breaks vanish to pay for welfare

The government is looking into overhauling the tax system and eliminating tax breaks to raise 15 trillion won ($13.5 billion) over the next five years, part of an all-out effort to raise money to pay for President Park Geun-hye’s welfare pledges.

But the government hasn’t announced which breaks will be cut. It may do so in August.

According to the Ministry of Strategy and Finance yesterday, the government will not extend tax breaks that are set to expire this year.

In the past, certain taxes expired but were extended.

Additionally, tax exemptions and deductions will be constantly reviewed to find ways to widen the tax net.

The ministry said a total of 30 trillion won is being lost every year because of various tax breaks it wants to review.

The Finance Ministry plans to cut the figure by 3 trillion won every year for the next five years.

The government started to cut tax breaks after the global financial crisis of 2008. The total amount of tax benefits that taxpayers got in 2009 amounted to 31.1 trillion won. This shrunk to 29.7 trillion won in 2012.

Last year, 226 types of income were not taxed or given tax deduction while 24 were ended. This year, 44 tax breaks are scheduled to expire.

But the National Assembly has to approve each one.

The Finance Ministry tried to abandon 104 tax benefits last year, but was thwarted by lawmakers on three-quarters of them.

If the ministry successfully eliminates the 44 tax benefits this year, it can save about 1.7 trillion won.

However, since 60 percent of the tax breaks go to working-class people and small enterprises, strong opposition is expected.

The Park government has also pledged more than 10 new tax breaks and refunds for small businesses and the working class.

The Earned Income Tax Credit (EITC) for low-income families is an example. Park pledged to refund up to 500,000 won from income tax payments for every child under 18 of low-income households that earn less than 40 million won a year in a bid to boost the country’s low fertility rate.

At the same time, the Finance Ministry is considering a measure to cut the EITC for the well-off.

“The ministry is trying to find a way to increase tax revenue without raising tax rates as President Park said,” Park Choon-ho, director at the tax policy bureau of the Finance Ministry, said. “Reducing the EITC is a good way to do so.”

The ministry estimates that about 34 trillion won is being doled out in income tax credits. About 87 percent is given to households in the top 20 percent of income earners, the ministry said.

By Song Su-hyun [ssh@joongang.co.kr]