Religious leaders to pay income tax

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Religious leaders to pay income tax

In a sweeping revision of Korea’s tax system, the government plans to tax religious leaders for the first time and change regulations governing “corporate cars.”

The revisions were proposed at the taxation subcommittee of the Strategy and Finance Committee of the National Assembly on Monday.

In a move to be approved by the National Assembly on Wednesday, the government said it will begin collecting income tax from pastors, clergy and monks starting in 2018. The decision comes after long-standing discussions on the sensitive issue over the past 50 years.

“We decided to take the next two years as a time to prepare for the new rule, since it is the first time that Korea has implemented such a law,” Rep. Kang Seog-hoon of the ruling Saenuri Party said. “During the two years, we will keep communicating with religious groups so that the policy can settle down without turbulence.”

The revision categorizes income of religious leaders as “religious income,” instead of what is currently classified as an “honorarium,” and it will be collected under the same conditions as regular workers’ income.

The revised code levies a tax based on the level of income. Currently, all pastors, clergy and monks receive a flat tax exemption of 80 percent, regardless of how much they make.

Starting in 2018, 20 percent to 80 percent of clergymen’s salaries will be considered necessary expenses and not be taxed. The lower the income, the higher the level of expenses.
For a clergyman with income of 20 million won or less, 80 percent will be considered necessary expenses. The income tax rates range from 6 to 38 percent, the same as for normal taxpayers.

In the second major move to overhaul the tax system, lawmakers also decided to cut tax benefits on so-called corporate cars, vehicles purchased under a company name and intended purely for business use.

The exemptions for corporate cars have come under criticism as people were found driving the vehicles for personal use.

The heads of the taxation subcommittee - lawmaker Kang Seok-hoon from the ruling Saenuri Party and Kim Kwan-young from the New Politics Alliance for Democracy (NPAD) - tentatively agreed on Monday to change regulations on corporate cars.

Currently, companies are charged a tax on corporate vehicles based on the firm’s net income, which subtracts expenses from revenue.

Once a vehicle is registered under the name of a business, the car is included as an expense, which also includes the consumption tax generated when buying a car - including gas, auto insurance, auto taxes and toll fees.

The government also refunds the value-added tax paid by corporate car owners.

A firm can also report 20 percent of the price of the vehicle as a business expense for the first five years. Therefore, if a firm purchases a 200 million won car under its name, the firm can report 40 million won as an expense per year, meaning the user can include 200 million won as expenses that are not subject to taxes for five years.

Under such exemptions, many companies and individual entrepreneurs purchase luxury cars under the firm’s name.

But lawmakers want to lower the 20 percent limit to a standardized 8 million won per vehicle per year, meaning that it would take 25 years to repay the cost of a 200 million won car.

Firms will also be limited to claim a maximum of 10 million won a year in operational costs.

BY KWON SANG-SOO, KIM JI-YOON [kwon.sangsoo@joongang.co.kr]

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