Yoon tax plan designed to help the people and the economy

Economy

Published: 21 Jul. 2022, 18:33 Updated: 21 Jul. 2022, 19:36

Yoon tax plan designed to help the people and the economy

Finance Minister Choo Kyung-ho, left, and Korea Enterprises Federation Chairman Sohn Kyung-shik attends the Tax System Development Deliberation Committee meeting held at the Bankers Club in Meyong-dong, Seoul on Thursday. [YONHAP]

Tax reforms being pushed by the administration are designed to undo the damage done by the previous administration's tax policies, the Yoon Suk-yeol government says.

The new policies, which were introduced Thursday, are also decidedly Keynesian, for the various cuts and credits are designed to stimulate spending and economic activity.

Taxes will be cut for a wide range of economic participants, including companies large and small and individuals, especially those with properties.

If the tax reform is passed in the National Assembly, which is not a sure thing, taxes will be lowered 37 percent for a company that has been taxed on 500 million won.

Boosting businesses

The signature policy is taking the top corporate tax rate down to 22 percent from 25 percent.

Currently, companies with taxable income above 300 billion won pay 25 percent on their taxable income, between 20 billion won and 300 billion won 22 percent, between 200 million won and 20 billion won 20 percent, and under 200 million won 10 percent.

Under the new system, companies with taxable income above 20 billion won will pay 22 percent, from 500 million won to 20 billion won 20 percent and below 500 million won 10 percent.

According to the government, the average corporate tax rate in the Organization For Economic Cooperation and Development is 21.2 percent, while 24 of the member states in the group have lowered the rate since 2008. Korea is one of the five that has upped their rates.

Currently, listed companies pay no tax on income from 100-percent-owned overseas subsidiaries, 50 percent of the tax if it owns more than 30 percent and 70 percent if it owns less than 30 percent.

Under the Yoon plan, no tax will be paid on income for overseas subsidiaries more than half owned, 20 percent if it owns more than 30 percent and 70 percent if it owns less than 30 percent.

The basic exemption on the inheritance tax for shares will be increased from 500 million to 1 billion won. The rate will be 10 percent for amounts less than 6 billion won and 20 percent above that amount. The current rate is 10 percent below 3 billion won and 20 percent above.

To help start-ups with hiring, the government is raising the tax exemption on stock options from the current 50 million won to 200 million won.

Individual taxation

Yoon is proposing the first major change in the individual income tax system in 15 years.

People earning above 88 million won a year will pay at the same rate, ranging from 35 percent to 45 percent.

Currently, income between 46 million won and 88 million won is taxed 24 percent. Under the proposal by the Yoon government, the lower end will be raised to 50 million won, and between 14 million won and 50 million won, the rate will be 15 percent. The six percent rate, the lowest rate, will be charged on incomes up to 14 million won, up from the current 12 million won.

For a person making 30 million won a year, taxes will fall by 27 percent. For a person making 50 million won, tax payments will fall by 10 percent.

The tax credit on credit card spending will be extended for three years. The public transportation spending tax credit is being raised from 40 percent to 80 percent

The ceiling on the tax credit for spending at traditional markets and public transportation will be raised from 1 million won to 3 million won for those whose annual income is 70 million won or less and 2 million won for those who make more than 70 million won more.

The maximum tax credit for those with income exceeding 120 million won will be raised from 2 million won to 2.5 million won.

A 30 percent tax credit will be added for credit card spending at movie theaters.

The duty free good allowance will be raised from $600 to $800 and the one bottle limit will be raised to two.

Property tax change

Major changes have been proposed by Yoon for real estate taxes, and these are likely to get the most resistance from the Democratic Party.

The threshold for the comprehensive real estate tax will go from the current 1.1 billion won to 1.4 billion won. The change will only last for a year, but the goal is to get it lifted to 1.2 billion won.

The rate will go from a range of 0.6 percent to 6 percent to a range of 0.5 percent to 2.7 percent, and the rate will be the same for those who own a single unit or many units. The number of taxation bands will be increased so that there will be two between 1.2 billion and 5 billion.

Between 2020 and 2022, the assessed value of apartments increased 48 percent. As such, the number of people that were taxed increased from 332,000 in 2017 in the first year of the Moon Jae-in government to 931,000 last year.

The Moon government increased taxes to get people owning multiple units to sell some of the units in the hope that that would drive down prices.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]