More taxes to go up to pay for welfare pledges

The Park Geun-hye administration announced yesterday local tax hikes to help regional governments fund broader welfare programs.

The Ministry of Security and Public Administration yesterday announced tax reform proposals centered on increasing rates of residential taxes and automobile taxes.

Those key local taxes have been frozen for more than two decades, and the ministry said the tax hikes are part of the Park government’s grand program of “normalizing the abnormal.”

Announced one day after a tobacco tax hike, the plan is expected to draw criticism since Park pledged during her presidential campaign that her welfare promises would be kept without increasing taxes.

Cigarette and residential taxes can also hurt low-income individuals. The opposition New Politics Alliance for Democracy already criticized the proposals as “tax bombs on the working class.”

The ministry said yesterday it wants to revise the law governing the residential tax to allow local governments to levy higher amounts. The resident tax varies for each local government and it currently averages 4,620 won ($4.46) a year.

Under current law, local governments can levy up to 10,000 won in taxes on an individual household, and the ministry said it wants to change that amount to as high as 20,000 won.

The change, the ministry said, will be introduced gradually. As a first step, local governments should levy residential taxes as low as 7,000 won and the amount will be increased to as low as 10,000 won in 2016.

Corporations’ residential taxes will also be restructured by changing the current five-level tax brackets to nine.

Companies with less than 10 billion won in capital are currently paying 50,000 won to 350,000 won in resident tax, but the amount will be increased by 50 percent next year. In 2016, the tax rate will be increased by 100 percent.

Companies with more than 10 billion won in capital will be divided into five new tax brackets and the new standards will be applied by 2018.

The ministry said the resident tax, frozen over 20 years, is sometimes lower than the fee for using a public bath house. “The specific rate for each local government will be decided by the local legislative councils,” it said.

The ministry also said it will increase the automobile tax rate, which has been frozen since 1991, taking into account the 105 percent price hike over the period.

The ministry said the tax hike on cars will be introduced gradually over a three-year period.

The rate will be increased by 50 percent from that of this year, the ministry said, and by 75 percent in 2016 and by 100 percent in 2017.

Exceptions will be made for the vans carrying up to 15 passengers, which are used by micro-businesses, as well as mini-trucks.

Discounts for paying automobile taxes in advance at the beginning of the year will also end by 2016. With the change, the owner of a full-size passenger car will lose an opportunity for a discount of about 130,000 won.

Taxes on regional resources such as underground water will also be increased by 50 to 100 percent. Tax on nuclear power will be increased by 50 percent.

The tobacco consumption tax, increased by 500 won in 2005 to 641 won for a pack of cigarettes, will be increased to 1,007 won.

Fewer people will benefit from local tax exemptions, the ministry said, announcing a goal of lowering the local tax exemption ratio to 15 percent from the current 23 percent.

The ministry said the public can review the plan until Oct. 7. The Ministry of Government Legislation will examine it in October before sending the bill to the National Assembly.

BY SER MYO-JA [myoja@Joongang.co.kr]