Since February some 14 bills calling for tax reductions have been submitted to the National Assembly. Of particular concern is the fact that there are again calls for cuts in the corporation tax and income tax. A group of 25 Assembly members, mostly with the main opposition Grand National Party (GNP), have proposed a bill would raise the standard of assessment for corporation tax from W100 million to W200 million and lower the tax rate for entities under W200 million from 13 percent to 10 percent, and then also lower the income tax rate by 2 percent. The idea is supposed to be to help out medium sized companies and household finances. That sounds plausible enough but it would be hard to agree to that now is the time for that. You even wonder if it has something to do with upcoming special elections.
The revision of the corporate tax law passed in 2003 and calling for a 2 percent cut takes effect this year. The income tax was lowered 1 percent last year. We have not even seen yet whether the cuts will have the intended effect of encouraging investment and contributing to domestic consumption or whether they will just become a financial burden for the government without being very effective. Someone is going to have to pay the price. Furthermore, each of these two taxes are "direct taxes" and as such tax cuts will relatively be of more benefit to high-income individuals. 85 percent of incorporated companies are below the W100 million assessment standard for corporate tax. If the standard is raised to W200 million, companies that are better off are what will be included. Half of working people and the self-employed are already under the cut-off point for income tax, and so reducing income tax would have no relation to disposable income for the common citizen. Meanwhile the smaller revenues would have to be made up for with other taxes or there would inevitably be a reduction in spending for the common people.
Reckless tax reductions disrupt the structure of tax revenue and spending. It is generally considered regressive in relation to income when the there is not much in direct taxes, but in Korea direct taxes account for around 50 percent of all taxes, far lower than in advanced nations, where they are between 60 and 70 percent. Even if you look at social security spending compared to GNP, Korea does not even meet half of the average for OECD member nations. There actually has to be more spending. Tax cuts must not be used as political strategy, for once you cut taxes what you have done becomes a burden for state finances for a very long time.
The Hankyoreh, 21 April 2005.
[Translations by Seoul Selection (PMS)]
Complaining About Taxes Again? |
