Changed tax code threatens charitable donations

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Changed tax code threatens charitable donations

Park Jum-sik, the CEO of Chunji Tax Accounting, has donated 50 million won ($45,550) every year since 2010 to local community groups. The 61-year-old gets tax refunds from his donation, but he also puts that money toward charity.

But these days those prospects aren’t as bright. Although he has yet to calculate the figure, Park expects his annual tax return will be less than in previous years.

The recent change in the tax code has made many like Park, who frequently make donations, reluctant to contribute to charitable organizations, while community groups and schools are already reporting that fewer contributions have come in.

“Donors didn’t know about the revised tax law last year, so donation didn’t decrease,” said Kim Seok-hyun, the director of outreach at Community Chest of Korea. “However, after calculating their taxes this year, they noticed their tax return was smaller, so there may be less donations this year.”

According to a report from the Korean Association of Public Finance, the revised tax system will increase government tax revenue by 305.7 billion won but will result in a 2.03 trillion won decrease in total donations made to local communities or schools.

Acting on concerns that donations may suffer, Community Chest of Korea, one of the nation’s most renowned charity groups and fund-raisers, requested on Thursday that the National Assembly and the Ministry of Strategy and Finance retroactively change the income tax code to what it was.

Donations were previously subject to tax deductions, working as a reduction in people’s taxable income. But after a revision of the tax law last year, the system became based on tax credits, meaning it will only affect the rate of a taxpayer’s tax return.

“For the government, tax revenue will slightly increase, but the total number of donations will go down significantly,” said Kang Chul-hee, a professor in the School of Social Welfare at Yonsei University. “The revision of the tax law just seems to be a petty trick to collect more taxes.”

The revised tax law serves as a big blow to large-scale donations. For instance, if a businessman whose annual income is 500 million won donated 100 million won, then until 2013, he would receive a 38 million won tax return. Now, however, he will only receive 22 million won.

If a worker earning 70 million won a year donates 3.5 million won, he will receive a smaller tax return, reduced from 840,000 won to 525,000 won. Under the new tax code, taxpayers can only get a 15 percent return on their donations, down 9 percentage points than previously.

BY SHIN SUNG-SIK, JUNG JONG-HOON [kjoo@joongang.co.kr]




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