Is the government filling the revenue gap by squeezing salaried workers?
Published: 19 Feb. 2025, 00:00
Last year, the amount of tax paid by salaried workers exceeded 61 trillion won ($42.3 billion). According to data released by the Ministry of Economy and Finance on Monday, income tax revenue last year reached 61 trillion won, an increase of 1.9 trillion won from the previous year, accounting for 18.1 percent of total national tax revenue — a record high. In contrast, corporate tax revenue stood at 62.5 trillion won, down by a staggering 17.9 trillion won from the previous year. After peaking at 103.6 trillion won in 2022, corporate tax revenue has been on a two-year decline, bringing it nearly level with income tax revenue. The shrinking corporate tax revenue has had a significant impact on overall tax collection. Total tax revenue last year was 336.5 trillion won, down by more than 59 trillion won from the record-high in 2022. If not for the increase in income tax revenue, the total tax collection would have fallen even further.
The problem is that this structure is unsustainable for the Korean economy. With corporate tax revenue — the pillar of tax collection — shrinking, there is a limit to how much the government can compensate by increasing the tax burden on salaried workers, whose earnings are more transparent than other income sources. Under the current tax system, complaints from taxpayers persist, as a high tax rate of over 35 percent, excluding local taxes, is applied to those with a taxable income exceeding 88 million won.
In response to these concerns, the government adjusted the taxable income brackets in 2022 for the first time in 15 years, but only for those in the 6–24 percent tax rate range. For income levels above this range, the tax brackets remain effectively unchanged from 18 years ago. This means that even as workers receive promotions or salary increases, their take-home pay does not rise significantly, while the government passively benefits from increased income tax collection. Moreover, since the Park Geun-hye administration revised the tax deduction system by converting certain income deductions into tax credits, benefits such as deductions for credit card usage have been reduced, inevitably leading to an increase in income tax payments.
It is natural for income tax revenue to grow over time. In advanced economies, individual income taxes — including income tax from salaries — typically account for a much larger share than corporate taxes. Furthermore, Korea’s average effective income tax rate remains significantly lower than that of advanced economies, and its ratio of income tax to GDP is still relatively low. The proportion of taxpayers exempt from income tax stands at around 25 percent, which is also higher than in many developed countries.
However, the shrinking of corporate tax revenue itself is a dangerous signal. When corporate vitality declines, wage growth becomes difficult, making it unsustainable to continue extracting more tax revenue from salaried workers. On the surface, it may appear that income tax revenue has surged to levels comparable to corporate tax revenue. However, the underlying issue is that corporate tax revenue has plummeted by nearly 40 percent in just two years due to weakened corporate profitability.
To break this cycle, policies must be implemented to ease regulatory burdens on businesses and enhance their vitality, thereby improving their ability to pay higher wages. This is the most effective way to relieve salaried workers from an excessive tax burden.
Translated using generative AI and edited by Korea JoongAng Daily staff.
The problem is that this structure is unsustainable for the Korean economy. With corporate tax revenue — the pillar of tax collection — shrinking, there is a limit to how much the government can compensate by increasing the tax burden on salaried workers, whose earnings are more transparent than other income sources. Under the current tax system, complaints from taxpayers persist, as a high tax rate of over 35 percent, excluding local taxes, is applied to those with a taxable income exceeding 88 million won.
In response to these concerns, the government adjusted the taxable income brackets in 2022 for the first time in 15 years, but only for those in the 6–24 percent tax rate range. For income levels above this range, the tax brackets remain effectively unchanged from 18 years ago. This means that even as workers receive promotions or salary increases, their take-home pay does not rise significantly, while the government passively benefits from increased income tax collection. Moreover, since the Park Geun-hye administration revised the tax deduction system by converting certain income deductions into tax credits, benefits such as deductions for credit card usage have been reduced, inevitably leading to an increase in income tax payments.
It is natural for income tax revenue to grow over time. In advanced economies, individual income taxes — including income tax from salaries — typically account for a much larger share than corporate taxes. Furthermore, Korea’s average effective income tax rate remains significantly lower than that of advanced economies, and its ratio of income tax to GDP is still relatively low. The proportion of taxpayers exempt from income tax stands at around 25 percent, which is also higher than in many developed countries.
However, the shrinking of corporate tax revenue itself is a dangerous signal. When corporate vitality declines, wage growth becomes difficult, making it unsustainable to continue extracting more tax revenue from salaried workers. On the surface, it may appear that income tax revenue has surged to levels comparable to corporate tax revenue. However, the underlying issue is that corporate tax revenue has plummeted by nearly 40 percent in just two years due to weakened corporate profitability.
To break this cycle, policies must be implemented to ease regulatory burdens on businesses and enhance their vitality, thereby improving their ability to pay higher wages. This is the most effective way to relieve salaried workers from an excessive tax burden.
Translated using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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