South Korea's Finance Ministry unveiled a set of tax plans on Monday aimed at helping economic growth and strengthening the social safety net.
According to the plans to be submitted to the National Assembly soon for approval, the government will extend tax incentives for research and development. A series of tax benefits scheduled to expire this year, mostly for smaller companies, will be extended till 2009 as well, according to the ministry. The ministry said the extension of the deadline is aimed at helping the creation of jobs to invigorate the economy.
"We focused mainly on how to support the economy when drawing up the plans," said Huh Yong-suk, director general of the ministry's tax policy bureau.
The tax plans also call for the government to cut tariffs on imported raw materials such as oil and liquefied natural gas by up to 2 percentage points.
The tax scheme changes came at a time when the country's economy, Asia's fourth largest, is showing signs of a slowdown on slowing private spending and a weak recovery in corporate investments.
South Korea's economic growth cooled to 0.8 percent in the second quarter, the slowest pace in more than a year, as the construction sector remained in the doldrums and consumer spending slackened.
The economy has been expected to grow 5 percent this year on the back of a recovery in private spending and resilient exports.
But soaring oil prices and the South Korean currency's ascent against the U.S. dollar emerged as key obstacles to momentum for a recovery. According to the plans, taxes on bond interest income for offshore investors will be cut to 14 percent from 25 percent, and foreign technicians and engineers working in South Korea will be exempt from paying any income tax for five years.
Companies will also get tax breaks till the end of 2009 when they invest in environment and safety-related facilities.
The ministry also plans to offer more tax incentives for households with more children in an effort to encourage families to have more children.
South Korea's fertility rate, the average number of children born to a woman aged 15-49, fell to 1.08 in 2005, down from 1.16 the previous year, hitting a record low as more and more women engaged in economic activities and married at older ages.
Last year's fertility rate was far lower than the world average of 2.6 and the average of 1.57 in advanced countries, according to government data.
Such a trend turned the country into an aging society in 2000, when the ratio of the population aged 65 or older exceeded 7 percent. The figure is expected to double by 2018, when South Korea is predicted to officially become an aged society.
The government also plans to introduce tax incentives for low-income workers starting from 2008 as part of its efforts to reduce the widening income gap between the rich and poor.
About 310,000 households with low incomes are estimated to be eligible in the first year for the Earned Income Tax Credit system, a refundable tax credit for low-income workers outside the social safety net, according to the ministry.
The annual incomes of those households should be 17 million won (US$17,800) or less, and their assets should not exceed 100 million won, excluding housing, according to the report.
Under the plan, up to 800,000 won will be given to those households, it said.
Seoul, Aug. 21 (Yonhap News)
Seoul changes tax schemes to help economy, improve social safety net |
