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(EDITORIAL from Korea Times on Aug. 4)

2017/08/04 06:59

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Flawed tax revision plan

The government has unveiled a tax revision plan to impose higher taxes on big companies and high-income individuals as part of its efforts to address inequality.

The plan envisages raising the nominal tax rate on companies with taxable income exceeding 200 billion won ($178 million) to 25 percent from 22 percent. For individuals, the income tax rate would rise from the current 40 percent to 42 percent for those earning more than 500 million won a year. The tax proposal would lead to about 5.5 trillion won in additional tax revenue annually.

Given the dire need for fiscal spending to play a bigger role in creating jobs and improving wealth distribution, the latest tax plan is not wrong-headed.

But taxing "specific groups" heavily is in doubt, considering the new government's intent to secure 178 trillion won over the next five years to finance its avowed 100 national tasks. Policymakers say the needed financial resources could be raised by raising tax revenues and restructuring expenditure, but this notion is quite unrealistic.

If the new liberal government had felt the need to raise taxes to boost its income-led growth mantra, it should have been more frank about tax hikes. In Korea, 46 percent of wage earners don't pay a single penny in income taxes. So the tax exemption ratio should be cut to 20 to 30 percent under the principle that every citizen is liable to taxation.

As things stand now, the Moon Jae-in administration is highly likely to issue bonds to fund its welfare pledges. But this will prompt our fiscal health to deteriorate and result in passing our burden to future generations. The government must not be daunted by the people's resistance to taxes and should make efforts to move toward "universal taxation'' through persuasion and compromise.