Laborers get more tax breaks

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Laborers get more tax breaks

Residents of so-called gosiwon, or short-term living spaces, will be able to get tax breaks on their monthly rent. While many previous occupants of gosiwon were studying for the annual public servant exams for prosecutors and diplomats, today most residents are day laborers, such as those working on construction sites.

The new tax benefits for gosiwon occupants are part of the government’s tax code overhaul that is targeted at enhancing financial safety nets for those living in more vulnerable circumstances, including students burdened by loans and young people seeking jobs.

The government tax code is aimed at encouraging job opportunities at SMEs by providing tax support and encouraging investment in growth businesses through tax deductions, not only at SMEs but also larger companies.

On Tuesday, the Ministry of Strategy and Finance announced a bevy of tax code changes that it plans to implement next year. It also included a hard-line rule on global companies as well as family-run real estate leasing businesses largely affected by the actions of former Blue House chief of staff Woo Byung-woo. Woo reportedly drove high-end luxury vehicles, such as a Maserati, registered at the real estate leasing company owned by his wife for personal use but received tax deductions.

The government estimates that the tax code changes will likely contribute to increasing tax collections annually by 317.1 billion won ($263 million) starting next year. High-income earners and conglomerates will see their annual tax payments increase 725.2 billion won as their tax benefits will shrink. On the contrary, the tax burden on the lower and middle-income bracket as well as SMEs will be reduced 380.5 billion won. This includes an expansion on tax deductions on education, which will bring down tax burdens 11 billion won annually, and labor-related tax benefits that will further reduce tax burdens 10 billion won.

One of the key changes in next year’s tax code is the expanding benefits on those living without leases. Currently those who get tax breaks at the end of the year are households whose annual income is less than 70 million won, don’t have leases and pay month-to-month rent. A 10 percent refund is given with a maximum limit of 7.5 million won. It was previously allowed to only those with leases. Contracts that were signed under a spouses’ name without income were excluded. However, starting next year, such families will be able to apply for refunds on their tax returns. This includes those living in gosiwon.

The Finance Ministry said there has been a growing consensus that those such as construction workers should receive tax benefits like everyone else.

“This was designed to ease the tax burden on labor workers living in gosiwon,” said Choi Young-rok, Deputy Finance Minister on tax and custom.

The government is also easing the burden by providing tax breaks to those paying student loans even after landing a job as well as college students from farms and fishing families. Also, the government will be offering tax credit on expenses for school field trips to ease the financial burden on education.

A 10 percent deduction on income tax also will be given to those who purchase secondhand cars on credit cards.

Additionally, in hopes of promoting new growth industries, the government has expanded its tax deduction for medium and large businesses from 20 percent to a maximum 30 percent. This is the same tax deduction given to SMEs.

“For large conglomerates the maximum tax deduction will likely be around 25 percent but for medium-size businesses we have redesigned it so that they could get as much as 30 percent,” deputy finance minister Choi said.

“We have placed much focus of our tax reform on fostering the new growth engines,” Choi added.

However in some areas the government has tightened regulations. Multinational companies with branches in Korea and 1 trillion won in revenue, including overseas income, would now have to report revenue made abroad to prevent tax evasion.

The government also revised the corporate tax law on so-called family-run leasing businesses particularly because of Woo.

The Finance Ministry is reducing the maximum ceiling on deductible expenses on operating vehicles under corporate ownership.

Such limitation will be applied to companies where the share owned by the dominant shareholders as well as shareholders with special relationships to the largest stakeholder exceeds 50 percent; those whose main business is real estate leasing or businesses accounting for more than 70 percent of annual revenue plus interest and dividend handout; or companies with fewer than five regular employees.

“My understanding is that the Minjoo Party proposed of raising taxation on real estate lease business in early August had [Woo Byung-woo] in mind,” said Choi.

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