Revised tax code
More equitable distribution remains distant dream
The primary impression from watching the government’s annual tax revision bill is that officials seem to have neglected their duty. It has failed to touch any fundamental problems of the tax system, remaining content with some minor modifications.
Yet this passivity may be rather natural in the current situation. Most of all, there is not much time left to overhaul the tax system for this administration, now in its final year in office with presidential elections just four months away. In this country ruled by a five-year, single-term president, any reforms should begin in the first two years of the presidency.
The Lee Myung-bak administration wasted its early years providing tax cuts for wealthy individuals and big businesses, hoping to see an economic recovery but finding only a wider income gap.
It is regrettable in this regard the government still appears to stick to the benefits for the haves. For instance, the new tax code cuts individuals’ consumption tax for private golf clubs to lure back Korean golfers enjoying overseas rounds. It will be of little help for boosting the domestic economy, but erode revenue by 300 billion won a year. Even the ruling Saenuri Party opposes the idea, but officials say it is Lee’s ``special instruction.”
The same should be said about the exemption of consumption taxes on high-end home appliances under the pretext of their excellent energy efficiency, and doing away with heavy capital gains taxes on multiple homeowners. Pressured by the voter-conscious Saenuri Party, the revision raises minimal tax rate for large businesses from 14 percent to 15 percent, but revenue increase will be negligible, considering the myriad of tax exemptions and deductions given to large companies will nearly offset it.
Currently, the ruling Saenuri Party calls for an income tax ceiling of 38 percent to 40 percent to add about 1 trillion won to state coffers, while the opposition Democratic United Party (DUP) proposes to expand the tax base applicable for the maximum rate from those with annual income of 300 million won to 150 million won to create an additional revenue of 1.2 trillion won. The DUP also calls for an increase in the corporate tax rate from 22 percent back to 25 percent. Put together, the Saenuri plan will increase revenue by 1.66 trillion won in five years, and the DUP, 5.2 trillion won.
Disappointingly, the government’s revision bill reflected none of these. The shallow election strategy ― by not hurting the feelings of high-income voters while giving credit for any future tax breaks for the low-income voters to the governing party ― only reaffirms the pro-rich, anti-poor character of the Lee administration. Bureaucrats and executives say penalizing successful people with higher tax rates would lead to their mass exodus and weaken the economy. But no amount of ``tax bombs” will drive wealthy Koreans and chaebol families from this paradise of rich people.
Just think: Tax and welfare reduce the nation’s ``Gini coefficient,” or inequity index, by a mere 9 percent, less than a third of the average 31 percent among OECD members. Korea still has a very long way to go.
Which is also why the government should have begun taxing the almost ``for-profit” churches and temples, as well as ferreting out and slapping heavy taxes on people hiding properties at home and abroad.
Voters for their part will need to discern longer, fundamental changes from quick, transient benefits.