The government decided to raise the 'education tax' rate applied to bank loan interest rates while also considering measures to prevent the tax burden from being passed on to financial consumers. Currently, the education tax is included in the additional charge, meaning that financial consumers bear nearly the entire cost instead of the banks. If the education tax cannot be added to the additional charge, financial institutions such as banks are expected to pay around 3 trillion won in taxes each year.
According to the financial and political sectors on the 31st, the Presidential Committee on Policy Planning recently discussed measures to prevent the passing on of the education tax imposed on the financial and insurance sectors to financial consumers. A committee official noted, "It is the president's promise to exclude the legal costs that include the education tax from the additional charge, thereby reducing the repayment burden on financial consumers," and added, "We are discussing various measures."
The education tax is a tax collected for the purpose of expanding educational facilities and improving teacher treatment. According to the education tax law, financial and insurance companies must pay 0.5% (5 out of 1,000) of the revenue they receive from customers as tax. The government has included a proposal in the tax reform bill to establish a new tax bracket that applies a 1.0% tax rate for revenue amounts exceeding 1 trillion won.
The issue is that without reforming the additional charge system, the increased education tax can be fully passed on to financial consumers. Banks add the education tax as a legal cost to the additional charge when calculating interest rates. For example, if the interest rate for a loan, calculated based on credit scores, is 5% per annum, the bank adds 0.025% of that rate (which is 5 out of 1,000) as education tax to determine the final interest rate (5.025% per annum). If the tax rate rises to 1%, the final interest rate will become 5.05% per annum, increasing the interest burden on financial consumers.
The government's and ruling party's intention is to prevent such cost transfers. Proposals to amend the bank law to prohibit adding items such as the education tax to the additional charge have been raised several times previously. The Democratic Party of Korea has stated that it will pursue the bank law amendment as a party policy. A bank law amendment proposed by 11 lawmakers, including Min Byung-deok from the Democratic Party of Korea, last December included provisions to exclude reserve requirements and deposit insurance premiums from the additional charge. However, the education tax is currently excluded from the final proposal and will likely be discussed again in the National Policy Committee.
Banks are strongly opposed. They argue that since the education tax is already reflected in the prices of gasoline, vehicles, and alcohol, it is reasonable for borrowers to bear the education tax in loan interest as well. They also note the burden of the increasing tax. If the tax reform is implemented, it is expected that the education tax will approximately double, as financial institutions would have to bear the entire tax if it cannot be included in the additional charge. According to the National Tax Service, the education tax collected from financial and insurance companies in 2023 was 1.75 trillion won, nearing 2 trillion won.
A banking official stated, "The government's demands for co-prosperity finance and productive finance are increasing, but the tax burden is also growing," and added, "Legally defining the items for calculating the additional charge, which are considered trade secrets, is also too much management intervention."