[New year focus] 2019 economic policies focus on tax and jobs
One of the biggest changes in business this year is the government allowing ICT companies to expand stakes in internet banks from the current 4 percent to a maximum 34 percent. It hopes that strong internet banks will increase competition in the sector, improve financial services, drive down fees, increase deposit rates and lower lending rates.
Starting this year, the government will expand custom tax exemptions for Korean companies coming home. In 2018, SMEs with an overseas presence were given customs tax exemptions of 200 million won ($179,500) when partially returning business to Korea and 400 million won when returning all their capacity.
The government has decided to abolish the maximum cap while also allowing conglomerates to receive the same benefits.
The first on-arrival duty-free shop will be tested at Incheon International Airport, while other airports may eventually get the same sort of outlets, in hopes of boosting Korean traveler spending.
This year, SME duty-free operators will be allowed to renew their licenses twice instead of just a single time when the licenses reach maturity. Conglomerates that were prohibited from renewing their licenses at the end of their contract will be allowed to renew them once. Under the new rules, SME operators will not have to worry about their licenses for 15 years, while conglomerates will be free from getting new licenses for a decade.
In order to encourage owners of outdated diesel cars to switch to new cars to improve the air quality and promote spending, the government this year will be giving up to a 70 percent cut on the individual consumption tax to a maximum of 1.43 million won. The outdated vehicles, however, have to have been purchased prior to Dec. 31, 2008.
To expand eco-friendly bus deployment, the government has decided to waive value-added taxes on public buses that run on hydrogen fuel. Currently the exemption on the tax is only applied to electric buses.
To promote spending on cultural activities, the government will allow for a tax deduction on credit-card spending made at museums and art galleries. Currently, only book purchases, stage performances and concerts qualify for the 30-percent deduction. But that same benefit will now be allowed for spending at museums and art galleries.
In an effort to boost tourism, the government has decided to extend the value-added tax refund for foreign tourist spending on lodging in Korea. The program, scheduled to end the last day of 2018, will run for another year. The value-added tax refund for foreign spending on plastic surgery will also be extended until the end of this year.
The government in 2019 has expanded financial aid to low-income households. Included is the tripling of the earned income tax credit. Previously, the government offered a subsidy ranging from 850,000 won to as much as 2.5 million won to households making up to 25 million won a year. The age limit was capped at 30 years and their total assets had to be below 140 million won.
This year, the government has abolished the age limit and raised the asset limit to 200 million won. The maximum subsidy has been raised to 3 million won.
The child subsidy for low-income households has been increased from a range of 300,000 won to 500,000 won to a range from 500,000 won to 700,000 won per child. The labor income tax refund for day-to-day hires has been increased from 100,000 won per day to 150,000 won.
For the first time, religious organizations will be taxed. The groups, which until now had been income-tax exempt, will have to report their 2018 finances to the authorities by May 31.
While the minimum wage continues to be a major issue, several labor law changes will be implemented this year. A certain portion of regular bonuses and health and welfare payments will be included in calculating the hourly minimum wage for the first time.
The inclusion is expected to ease the labor-cost burden on businesses.
To help SMEs with the labor costs, the government is going to provide additional financial aid for companies making hires. Last year, companies with fewer than 30 employees received 130,000 won per month for each employee whose average monthly wage is less than 1.9 million won. Starting this year, the subsidy will be raised to 150,000 won for businesses with fewer than five employees where the average monthly wage is less than 2.1 million won. Companies with between five and 30 employees will continue to receive 130,000 won.
This year, the government is supporting companies that employee people for too few hours to be considered regular workers but offer them full regular-worker benefits, including company-paid insurance.
Last year, non-conglomerates making such hires received 600,000 won per month for each employee while conglomerates received 300,000 won. However, starting this year, all companies, regardless of size, will receive 600,000 won per month per employee.
The government has also eased the requirements for program eligibility.
Previously for non-conglomerates, the company had to pay more than 110 percent of the minimum wage for a flexible employee. For conglomerates, the pay had to be more than 120 percent of the minimum wage. But now, regardless of size, the qualifying level will be 110 percent of the minimum wage.
The government will also for the first time be offering 500,000 won a month for a maximum of six months to young people aged between 18 and 34 and seeking jobs. This payment will be only offered once in a lifetime.
Real estate taxation and regulation
One of the biggest changes that the government is making this year is to increase taxes on real estate. The move is aimed at addressing the structure of the market, whereby people have sought to make huge profits from selling or renting out apartments.
Starting this year, the comprehensive real estate tax rate will be increased.
Until last year, a 0.5 percent tax was levied on any apartment with an assessed value of more than 900 million won, with the taxable amount being 600 million won. Properties with a taxable amount up to 9.4 billion won were slapped with a tax of 0.75 percent to 1.5 percent. Properties above 9.4 billion in value were taxed at 2 percent.
But starting this year, even properties with a taxable value below 300 million won will be taxed.
The lowest rate of 0.5 percent will be assessed on properties valued under 300 million won. Those between 300 million won and 600 million won will be taxed at a rate of 0.7 percent. Those between 600 million won and 9.4 billion won will face a tax rate between 1 percent and 2 percent. The maximum rate is now at 2.7 percent, which applies to apartments whose taxable value exceeds 9.4 billion won.
A higher rate is also applied to those who own multiple apartments.
The special tax rate is for those with three or more units or for those who have two or more apartments in areas where prices have risen more than twice as fast as consumer prices or where there’s high demand.
A total of 43 areas are in these categories, including all of Seoul, Seongnam, Hanam, Goyang, Namyangju, Dongtan 2 New Town, Gwacheon, Guri, Anyang, Gwanggyo in Gyeonggi, as well as Sejong and several districts including Haeundae and Dongrae in Busan.
The lowest rate applied to multiple homeowners is 0.6 percent while the highest is 3.2 percent. But to ease the burden of paying the real estate tax, the government has changed the requirements for installment plans.
Last year, those whose comprehensive tax exceeded 5 million won were given two additional months to pay their tax. That level has been reduced to 2.5 million won, with the installment-payment period extended to six months.
The government has also tightened the rules for the taxation of income made from renting apartments.
Until now, the government didn’t tax housing rent below 20 million won a year. This year, even those with incomes below 20 million won will have to report their incomes and be taxed.
The government will abolish tax benefits given to some long-term apartment rentals. Previously, those who leased apartments on a long-term basis, and where the rent period and the level of rent was managed by the government, were exempt from paying capital gains tax when selling the apartment after 10 years.
These are apartments that were either purchased or built by private individuals but bound by government management, which include limiting the monthly rent increase to no more than 5 percent a year. These are apartments smaller than 85 square meters (915 square feet) in size.
The goal of the tax exemptions was to increase the participation of small apartment owners in the supply of affordable rentals to low-income households and to stabilize rental prices in the face of a shortage of supply.
The government has also toughened rules on long-term capital gains.
Previously, those owning a property for more than three years were given a 10 percent cut on their capital gains tax when selling. The maximum was 30 percent for those owning properties for more than 10 years. Now those who own a property more than three years will only be given a 6 percent cut, while those owning the property for more than 10 years will get a 20 percent discount.
In order to get the 30 percent cut on the capital gains tax, the property needs to be owned for more than 15 years.
The government has changed the regulations on buying real estate overseas. Anyone purchasing or selling more than 200 million won worth of real estate overseas must now report it to the government. Previously, any real estate bought overseas was to be reported to the government.
The government raised the bar to 200 million won as the requirement has been seen as an undue burden on small investors. Despite the liberalizations, penalties will be increased. Those failing to make a report on purchases or sales will - starting 2020 - face a fine of up to 100 million won, double the current maximum.
Until now, penalties for failing to report overseas financial accounts have been severe, while those for failing to report foreign properties have been considered light
BY LEE HO-JEONG [email@example.com]
Government’s resolutions run the gamut