Over 4 million people to see tax burden increase next year

More than 4 million salaried workers in South Korea will see their tax burden increase next year as the government is pushing to overhaul its tax code aimed at broadening its tax revenue base and raising sufficient money to meet growing fiscal demand.

The government will also impose taxes on earnings by monks, priests and other religious leaders starting in 2015, putting an end to a years-old controversy over the issue.

These are part of measures included in the 2013 tax code overhaul proposal that focuses on broadening the tax revenue base, expanding benefits to low- and middle-income earners and supporting the government's efforts to nurture small companies and create jobs.

Under the overhaul, 4.34 million people, who account for about 28 percent of workers, will see their tax burden increase next year, according to government estimate.

Those whose annual income ranges from 40 million won to 70 million won will have to pay an average 160,000 won (US$143.6) more in taxes, and the figure will rise to 330,000 won and 980,000 won for income brackets of 70-80 million won and 80-90 million won, respectively.

Those earning more than 300 million won a year will have to pay an average of 8.65 million won more in taxes next year, the government said.

The government also plans to phase out much of income deduction programs and replace them with tax deduction in a bid to provide more benefits to low- and middle-income earners.

Income deduction is designed to deduct government-designated expenses from an individual's annual salary before determining his or her taxable income. Under the program, more spending means less taxable income so it is regarded as providing more benefits to wealthy people.

"We will turn income deduction, which is a tax benefit more favorable to high-income earners, into tax deduction... and map out measures to impose taxes on income that has not been taxed before in a way to tackle the blind spot in our tax policy," Finance Minister Hyun Oh-seok told reporters.

Many income deductions being provided for expenses linked to childbirths, education, medical services, contribution and other spending will be replaced with tax deduction programs starting from 2014.

In order to avoid confusion caused by drastic changes in the taxation system, the government said that it will phase out other income deduction programs over the next few years.

Putting an end to a years-old controversy, the government also decided to impose taxes on earnings by monks, priests and other religious leaders starting in 2015.

Religious leaders here are customarily exempted from taxes, with some claiming that their work is regarded not as labor but as a spiritual service so they should not be subject to taxation.

The government said that it has held many meetings with religious leaders to iron out their differences. They recently reached an agreement to levy taxes on earnings of religious leaders by regarding them not as "labor income" but as "extra income." The tax rate will be about 4.4 percent of the total income.

The tax code overhaul plan is the first of its kind unveiled under the President Park Geun-hye administration, which was launched in February for its five-year term.

This comes especially amid worries that the slowing economic recovery might result in far less tax revenue for the government, which is pushing to expand spending on welfare programs over the next five years.

According to data provided by the National Tax Service, the government collected 82.13 trillion won in taxes during the January-May period, which is about 9 trillion won less than the same period a year earlier.

The government estimated that it could raise about 2.49 trillion won more over the next five years through the tax overhaul plan, which requires parliamentary approval before going into effect. It will be submitted to the National Assembly in late September.

Of them, 2.97 trillion won will be collected from high-income earners and large businesses. Low- and middle-income people and

small- and medium-sized enterprises will pay about 620 billion won less in taxes over the next five years, the government explained.

"We will continue the push to expand our weakened tax revenue base by streamlining tax benefit and reduction programs, regularize the underground economy and other efforts without directly raising tax rates," Finance Minister Hyun said.

"The money raised through such efforts will be channeled to people in difficulty and need through spending on welfare programs," he added.

Along with the measures, the government unveiled its mid- and long-term management plan for the country's tax policy, in which it promises to raise the ratio of tax payment to gross domestic product or the "tax burden ratio" from 20.2 percent to 21 percent by the end of 2017.

The objective will be achieved without directly adjusting tax rates, the government said.

Another broad policy direction is to increase the proportion of income and consumption-related taxes, while adjusting corporate taxes in a "market friendly" manner, suggesting that the government might push to lower tax rates on company profits in the longer term. (Yonhap News)