Choi apologizes for hike in middle-class tax bills

Finance Minister Choi Kyung-hwan on Tuesday made a public apology for tax increases that have come about because of a switch in the tax system last year and for the government’s assurances that the middle class wouldn’t suffer, which proved to be untrue.

“I feel sorry for causing such concerns for our people,” Choi said at a press conference held at the Central Government Complex in Gwanghwamun, central Seoul. “The government will consider making the distribution of the tax burden fairer by adjusting deduction categories and levels and will seek a tax reform plan that takes into account the number of offspring and post-retirement savings.”

Public disgruntlement has been growing since the National Tax Service opened its year-end tax settlement service on its website on Jan. 15.

As public complaints swelled, the Blue House also held an unscheduled press briefing on Tuesday evening explaining the tax system.

“It’s a difference of whether you pay more [tax] and then get more of a refund, or you pay less and then get less of a refund,” said Ahn Jong-beom, the senior presidential secretary for economic affairs. “There are complaints that people are paying additional tax, but there is no difference at all in the determined tax amount.”

Although the finance minister acknowledged that tax bills may rise for some middle-class salaried workers depending on the number of family members, he defended the change in the policy last year.

“The government and political circles agreed to switch the old deductions from the taxable income into tax credits in 2013 in order to enhance fairness in taxation,” Choi said. “The scheme raises the tax bills for high-income earners while lessening the burden on low-income people.”

The former economic team of the Park Geun-hye administration led by Finance Minister Hyun Oh-seok announced the tax reform plan in July 2013. Its main idea was to do away with deductions from taxable income 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 the taxes owed, not from the taxable income as a whole.

About 13 million workers with an annual income of less than 55 million won will actually pay less tax. But last year, the government said people who make between 55 million won and 70 million won will see their taxes go up a marginal amount - between 20,000 won and 30,000 won per person.

In reality, the increases for some middle-class salary earners will be 10 times that amount.

Choi asked for understanding.

“The total number of corporate employees is as many as 16 million people, and their tax liability can vary widely depending on the number of family members and types of expenditures subject to tax deductions,” he said.

Before the 2013 revision, many salary earners received tax refunds that were big enough to be nicknamed the “13th-month bonus.”

Choi said the government will analyze the changes in tax bills by March and find some measures to help people whose bills shot up.

Choi said the extra money collected under the new system, mainly from high-income earners, will be used to finance the government’s new earned income tax credit (EITC) and child tax credit (CTC) programs.

The EITC is aimed at helping low-income self-employed workers, while the CTC is designed to encourage people to have more children. The government said some 1.4 trillion won collected from taxpayers with annual incomes of 70 million won or more will be used to support the two programs.

The government will also consider revising the withholding income tax schedule within the year.

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