Fair taxes are possible, for now

The Ministry of Strategy and Finance has unveiled this year’s outline for tax code revision, which is focused on vitalizing the economy through tax cuts and incentives to increase jobs, investment and consumer spending. The cuts were aimed to make lives better for the working class and stimulate new growth industries. At the same time, a tax code was proposed to rationalize the rates for fairer taxation and bolster tax revenue.

But the plans do not live up to the rhetoric. Tax deductions aimed to increase the birth rate are one good example. The government proposed upping the tax cut for a second child to 500,000 won ($445) and 700,000 won for the third child from current uniform 300,000 won refund. But the cuts would be one-time only, as the incentives are given out for each birth.

The proposal also neglected to work on the fundamental problem of Korea’s income tax code. Of the 16.69 million workers who reported year-end settlements, 8.02 million have not paid taxes. The income tax exemption ratio was at 48.1 percent in 2014. One of every two people on permanent payroll was not paying taxes.

This happened because the government set the income base subject to exemption too low when it first introduced the preferential system in 2013 and made too many people eligible for tax exemption. It is wrong to think that people need not pay taxes because they earn little. Universal taxation must be upheld in order to justify and impose rightful dues from big income-earners.

Most countries keep their income tax exemption ratio at around 20 percent. Japan allows 15.8 percent, Germany 19.8 percent, Canada 22.6 percent and the United States 32.9 percent. But Korea’s rate is too high. The government must lower the ratio to the 2013 level of 32.4 percent. If it dithers, fearing a backlash ahead of the presidential election next year, it will never be able to achieve fairness in its tax policies.

JoongAng Ilbo, July 29, page 34