Fairness before lower taxes: Rethinking Korea’s income tax structure
Published: 12 May. 2025, 00:03
Audio report: written by reporters, read by AI
Ha Hyun-ock
The author is an editorial writer at the JoongAng Ilbo.
The season of tax cut promises has returned, and this time it’s tied to the presidential election. At the center of campaign pledges are Korea’s 20.85 million wage earners — those who pay earned income tax. Candidates are offering a menu of tax relief ideas, from expanding basic deductions to proposals for inflation-adjusted brackets. Whether or not these promises materialize, the underlying issue remains: wage earners, especially those in higher income brackets, are bearing a disproportionate tax burden.
Salaried workers have long been considered “glass wallets” by the tax authorities — transparent, compliant, and easy to tax through payroll withholding. This mechanism minimizes resistance and maximizes efficiency for the government. It also enables what some call “silent tax hikes.” Even if the legal tax brackets remain unchanged, rising wages can push workers into higher marginal tax brackets, automatically increasing the government’s tax revenue.
![A view of the Ministry of Economy and Finance complex in Sejong. [MINISTRY OF ECONOMY AND FINANCE]](https://koreajoongangdaily.joins.com/data/photo/2025/05/12/a29ea7bb-3142-4044-8433-9fa5cb14b76d.jpg)
This phenomenon is already evident. According to a report published on April 29 by the National Assembly Budget Office (NABO), while overall national tax revenue increased by an average of 5.1 percent annually from 2014 to 2024, earned income tax revenue jumped by 9.2 percent per year. While the increase in the number of wage earners may partially explain this growth, the tax burden has clearly intensified at a faster pace. Between 2014 and 2023, the number of income tax filers grew by 2.5 percent annually, but the amount of earned income tax collected rose by 10 percent per year.
The widening gap between income levels and tax brackets is a major driver. In 2022, some adjustments were made to income brackets in the 6 to 24 percent range, but the higher brackets — 35 and 45 percent — have remained unchanged since 2008. With nominal wages rising due to promotions or inflation, more workers have moved into higher tax brackets, increasing their tax burden despite earning only marginally more in real terms.
Last year, the total amount of earned income tax assessed exceeded 60 trillion won ($43 billion). That figure now rivals corporate tax revenue, which stood at 62.5 trillion won. With corporate profits shrinking amid economic slowdown, corporate tax revenue has dropped by nearly 40 percent. As a result, wage earners have become an increasingly vital source of tax income, whether they realize it or not.
![National Tax Service Director of Information Management Lee Seong-jin introduces the agency's at a news briefing at Sejong government complex on March 31. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2025/05/12/8cbf7f52-1834-43ec-bf22-51d1123646f8.jpg)
More troubling is the concentration of this burden. According to the NABO report, the top 20 percent of earners account for nearly 90 percent of all earned income tax paid. Just 12.1 percent of wage earners had annual salaries exceeding 80 million won in 2023, but they contributed 76.4 percent of the total income tax collected. These workers earned 35.7 percent of the aggregate wage income yet shouldered nearly three-quarters of the tax burden.
The imbalance becomes more striking when looking at the growth in tax revenue. Between 2014 and 2023, earned income tax revenue increased by 35 trillion won, from 25 trillion to 60 trillion won. Of that increase, 28.9 trillion won — or 84 percent — came from workers with annual salaries exceeding 80 million won. The reason lies in the steep jump in tax rates. When total salary surpasses 88 million won, the marginal tax rate leaps from 24 percent to 35 percent.
This creates a so-called “reverse effect,” where workers earning just below the threshold may take home more than those earning slightly above it. It is not uncommon to hear that some workers actually see their net income fall despite a raise. This discourages productivity and advancement, as higher earnings lead to disproportionately higher taxes. As the NABO notes, Korea’s current tax structure needs to be reassessed to improve both fairness and public acceptance.
One option under discussion is linking income brackets to inflation, but that presents practical challenges. A more realistic approach may involve further segmenting the brackets to prevent abrupt shifts in marginal tax rates. Adjustments to both the brackets and rates could ease the burden on high-income earners without compromising the system’s integrity.
Simply expanding the basic deduction — unchanged since 2009 — is not a cure-all. Before doing so, the patchwork of deductions currently in place needs a comprehensive overhaul. Otherwise, reforms risk introducing more complexity without solving underlying imbalances.
At the same time, reducing the number of income tax-exempt workers should be considered. About 6.89 million workers — roughly 33 percent of all wage earners — are classified as tax-exempt. This group includes those earning too little to owe tax and those who receive full refunds due to a wide array of deductions and credits. Compared to other advanced economies, this share is high. Broadening the tax base, even modestly, could allow for reduced tax rates overall without jeopardizing revenue.
![The Korean Confederation of Trade Unions and Federation of Korean Trade Unions hold a joint press meeting on the minimum wage at a conference hall in central Seoul on April 4, 2023. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/05/12/37e2032d-4f14-4c5b-8b0f-a1f80fb04959.jpg)
As American humorist Will Rogers once said, “People want just taxes more than they want lower taxes.” Of course, most would prefer both. But in the absence of significant cuts, perceived fairness matters. If people believe the system is balanced, they are less likely to view themselves as tax victims.
Korea’s earned income tax policy is overdue for structural reform. With elections underway, now is the time to move beyond populist tax giveaways and address the deeper issue — ensuring that the burden of taxation is shared more fairly across income groups.
Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
The author is an editorial writer at the JoongAng Ilbo.
The season of tax cut promises has returned, and this time it’s tied to the presidential election. At the center of campaign pledges are Korea’s 20.85 million wage earners — those who pay earned income tax. Candidates are offering a menu of tax relief ideas, from expanding basic deductions to proposals for inflation-adjusted brackets. Whether or not these promises materialize, the underlying issue remains: wage earners, especially those in higher income brackets, are bearing a disproportionate tax burden.
Salaried workers have long been considered “glass wallets” by the tax authorities — transparent, compliant, and easy to tax through payroll withholding. This mechanism minimizes resistance and maximizes efficiency for the government. It also enables what some call “silent tax hikes.” Even if the legal tax brackets remain unchanged, rising wages can push workers into higher marginal tax brackets, automatically increasing the government’s tax revenue.
A view of the Ministry of Economy and Finance complex in Sejong. [MINISTRY OF ECONOMY AND FINANCE]
The widening gap between income levels and tax brackets is a major driver. In 2022, some adjustments were made to income brackets in the 6 to 24 percent range, but the higher brackets — 35 and 45 percent — have remained unchanged since 2008. With nominal wages rising due to promotions or inflation, more workers have moved into higher tax brackets, increasing their tax burden despite earning only marginally more in real terms.
Last year, the total amount of earned income tax assessed exceeded 60 trillion won ($43 billion). That figure now rivals corporate tax revenue, which stood at 62.5 trillion won. With corporate profits shrinking amid economic slowdown, corporate tax revenue has dropped by nearly 40 percent. As a result, wage earners have become an increasingly vital source of tax income, whether they realize it or not.
National Tax Service Director of Information Management Lee Seong-jin introduces the agency's at a news briefing at Sejong government complex on March 31. [NEWS1]
The imbalance becomes more striking when looking at the growth in tax revenue. Between 2014 and 2023, earned income tax revenue increased by 35 trillion won, from 25 trillion to 60 trillion won. Of that increase, 28.9 trillion won — or 84 percent — came from workers with annual salaries exceeding 80 million won. The reason lies in the steep jump in tax rates. When total salary surpasses 88 million won, the marginal tax rate leaps from 24 percent to 35 percent.
This creates a so-called “reverse effect,” where workers earning just below the threshold may take home more than those earning slightly above it. It is not uncommon to hear that some workers actually see their net income fall despite a raise. This discourages productivity and advancement, as higher earnings lead to disproportionately higher taxes. As the NABO notes, Korea’s current tax structure needs to be reassessed to improve both fairness and public acceptance.
One option under discussion is linking income brackets to inflation, but that presents practical challenges. A more realistic approach may involve further segmenting the brackets to prevent abrupt shifts in marginal tax rates. Adjustments to both the brackets and rates could ease the burden on high-income earners without compromising the system’s integrity.
Simply expanding the basic deduction — unchanged since 2009 — is not a cure-all. Before doing so, the patchwork of deductions currently in place needs a comprehensive overhaul. Otherwise, reforms risk introducing more complexity without solving underlying imbalances.
At the same time, reducing the number of income tax-exempt workers should be considered. About 6.89 million workers — roughly 33 percent of all wage earners — are classified as tax-exempt. This group includes those earning too little to owe tax and those who receive full refunds due to a wide array of deductions and credits. Compared to other advanced economies, this share is high. Broadening the tax base, even modestly, could allow for reduced tax rates overall without jeopardizing revenue.
The Korean Confederation of Trade Unions and Federation of Korean Trade Unions hold a joint press meeting on the minimum wage at a conference hall in central Seoul on April 4, 2023. [YONHAP]
As American humorist Will Rogers once said, “People want just taxes more than they want lower taxes.” Of course, most would prefer both. But in the absence of significant cuts, perceived fairness matters. If people believe the system is balanced, they are less likely to view themselves as tax victims.
Korea’s earned income tax policy is overdue for structural reform. With elections underway, now is the time to move beyond populist tax giveaways and address the deeper issue — ensuring that the burden of taxation is shared more fairly across income groups.
Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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