Middle class pays more in 2014 taxes

Many salaried workers will be disappointed with their year-end tax settlement for 2014. Tax refunds are expected to shrink after tax code revisions made in 2013 went into force this year.

Some are even angry because they have to pay additional taxes. Their monthly deductions didn’t cover the amount they owe under the new tax laws.

Mr. Kim, a 33-year-old married worker at a conglomerate who has no children yet, breathed a sigh of relief after he learned that he will receive a tax refund of 430,000 won ($400) this year. Kim’s salary has been fixed at 37 million won since 2013, but his estimated tax refund is almost half of that last year.

“I feel lucky because at least I don’t have to pay more,” he said. Many of my superiors are panicking because they found out they owe taxes.”

Mr. Park, a senior manager at another conglomerate, is upset. Park used to receive about 800,000 won in tax refunds. He was taking care of his retired parents, but last year his younger brother decided to look after them. As a result, Park is no longer eligible for the tax deduction for taking care of his parents. As a result, his total tax refund this year sharply dropped.

“I heard from our finance team that I might end up paying an additional 1 million won in taxes,” he said.

Since the National Tax Service opened its website for year-end settlements on Jan. 15, complaints are exploding among office workers and other company employees.

In July 2013, the former economic team of the Park Geun-hye administration led by Finance Minister Hyun Oh-seok announced a tax reform plan.

Its main idea was to do away with deductions from taxable income of spending in four areas: education, medicine, charitable donations and insurance premiums, including the national pension system.

Under the new system, those forms of spending will instead be deducted at a new rate from tax owed, not from taxable income as a whole.

They are the major income tax deductions in Korea.

The measure was aimed at raising government revenues amid an economic slowdown, while keeping the president’s promise that the government wouldn’t raise tax rates.

At the time, the government stressed that the tax bill wouldn’t rise for people earning less than 55 million won a year. People who earn between 55 million won and 70 million won were supposed to see minor increases in their taxes, amounting to 20,000 won to 30,000 won, it said. The tax reform bill passed the National Assembly on the last day of 2013 and is implemented from this year.

But it turns out that the government’s promise of slight tax increases for ordinary company workers was a lie.

According to a simulation by the Korea Taxpayers Association, a salaried worker who earns 50 million won a year and has one child will pay at least 300,000 won more this year.

Every January, company employees in Korea are required to submit documents proving their expenditures of the previous year.

Withholding tax from the monthly paycheck are supposed to cover the tax owed and even be a bit more. Tax refunds were called the “13th-month paycheck” until a few years ago. Some ordinary workers would receive nearly 2 million won and it was a windfall.

Cho Won-dong, former senior secretary to the president for economic affairs - the mastermind of the tax reforms of 2013 - said in a telephone interview with the JoongAng Ilbo that he thought the new system would be more desirable.

“Under the deduction system prior to taxation, high-income people get relatively significant amounts of deductions,” Cho said. “While I was heading the Korea Institute of Public Finance, I thought the post-taxation system would be more desirable, and I still think so.”

“We opposed the plan from the beginning,” said Kim Kap-soon, chairman of the Korean Taxpayers’ Association. “Such costs are essential for people to make a living, so they should be deducted from the taxable income.”

Analysts say the government’s plan was fairly reasonable but not very popular.

“Considering Korean sentiment, suddenly imposing a lot of taxes causes too much of a backlash,” said Choi Won-seok, a professor at the University of Seoul.

“Withholding more tax every month and then giving back tax refunds at the end of the year would be a better measure that could reduce the backlash.”

Finance Minister Choi Kyung-hwan said Monday that the government will review supplementary measures regarding complaints about year-end settlements.

“Due to the system change in 2013, some taxpayers are facing an increasing tax burden, triggering complaints,” Choi said. “The government will consider measures to fix problems while implementing the new system.”

According to an explanation by Moon Chang-yong, deputy minister for tax affairs, the government will closely monitor and analyze the altered tax burden for individuals and review measures to revise the withholding tax table or to allow installment tax payments if needed.

“Under the changed system, earners of 70 million won or more will have to pay more taxes, but they account for the top 10 percent of the income bracket,” Moon said. “But it is true that people who are single or married but have no kids can also see a higher tax burden. It’s case by case.”

BY SONG SU-HYUN [ssh@joongang.co.kr]