The Ministry of Strategy and Finance conducted a large-scale operation to eliminate 'shadow taxes' that the public was largely unaware of last year. A comprehensive investigation of 91 fees resulted in the abolition of 18 and a reduction of 14, which decreased the burden on citizens and corporations by approximately 2 trillion won annually. This is the first major overhaul in 22 years since the introduction of the fee law.
Hidden costs in daily life, such as fees included in electricity bills for the power industry foundation fund, movie theater admission fees, and departure fees included in flight costs, were key targets for maintenance. Among the fees, there were quite a few instances where the usage was unclear or had low relevance to the intended purpose.
Although there was resistance from various ministries and concerns about fund management during the maintenance process, the Ministry of Strategy and Finance pushed for a bold reform centered on the principle of 'reducing the burden on citizens.' This comprehensive renovation of fees received a special award in the '2024 Ministry of Strategy and Finance Policy MVP' selected by the public at the end of last year.
Kim Myung-joong, the Deputy Director General in charge of fiscal performance at the Ministry of Strategy and Finance, noted in an interview with ChosunBiz on the 21st that 'the revision of fees is not merely about reducing expenses' and explained, 'It is a task aimed at enhancing transparency in fiscal operations and establishing a fair burden system.' He added, 'We did our best to ensure that citizens and corporations can truly feel the benefits.'
The following is a Q&A session with Deputy Director General Kim Myung-joong.
―What is the reason that a comprehensive maintenance has not taken place for 22 years since the introduction of the fee law?
'Fees are often used by individual ministries as funding for public utilities, making maintenance difficult. While some revisions were made in the past, it is the first time that a comprehensive investigation of all 91 fees has been conducted and large-scale maintenance implemented like this.
From the ministries' standpoint, the fees are crucial funding for various projects, leading to significant resistance. However, the president directed that 'all 91 fees undergo a comprehensive review from scratch,' and the ongoing demands from the economic sector contributed to the push for reform.
―How were the criteria for the abolition and reduction of fees established?
'We based the criteria on the constitutional court's precedents and discussions within public-private task forces (TF) regarding the public utility purpose and the accountability of the fee subjects. For example, the movie theater admission fee was included in the abolition list as it was difficult to see that moviegoers directly contributed to the advancement of the film industry.'
―What changes can citizens expect to feel?
'Due to the abolition of the power industry foundation fund fee, there is an expected annual reduction of about 8,000 won in electricity bills for a household of four. The abolition of the departure fee, which was previously 11,000 won per person when traveling abroad, also creates a reduction effect of tens of thousands of won for family trips.'
'Changes can also be felt in frequently encountered expenses, such as about 500 won less per movie ticket. Additionally, the school land burden fee has been included in the selling price; the abolition of this fee is expected to lower the housing prices.'
―What was the most challenging aspect of the policy implementation process?
'The significant resistance from ministries was a challenge. Abolishing or reducing fees would lead to reductions in related projects or funding. Vice Minister Kim Yoon-sang personally met with vice ministers from various ministries to discuss the matters related to fee maintenance closely.'
'Particularly, coordinating with the Ministry of Foreign Affairs was the most difficult. The international exchange contribution fee paid when issuing passports had been used for public diplomacy funding, so there were considerable concerns from the ministry regarding its reduction. Discussions inevitably prolonged over how to secure alternative resources for public diplomacy.'
'While it took time to look for alternatives by referencing cases from abroad, the principle of reducing the burden on citizens was prioritized to reach a final agreement.'
―In a situation of decreased tax revenue, will there be no impact on finance with an annual income reduction of 2 trillion won?
'Consultations with the budget office were not easy either. The burden on government financial management could increase due to insufficient tax revenue under the commitment to sound fiscal management. However, if you look closely, the 2 trillion won reduction this time is a decrease in specific purpose fee revenue, which has a different nature from a reduction in general tax revenue.'
'For instance, the power fund fee, which accounts for about 900 billion won of the 2 trillion won, was projected to have no major issues with operations due to compensatory measures such as an increase in electricity bills. I believe that the overall impact on finances can be adequately managed through alternative means.'
―There were criticisms that the fee maintenance has reduced the burden more for corporations than for citizens.
'The fee maintenance aimed to reduce the burden on both citizens and corporations, but there were claims that the relief effect for citizens was relatively less. For instance, while the power fund fee results in an annual savings of about 8,000 won for a household of four, large corporations like Samsung Electronics and SK hynix respectively benefit from reductions in fee burdens of about 30 billion to 40 billion won. This has led to criticisms that the burden reduction effect is greater for corporations than for citizens.'
'However, not only large corporations but also small and medium-sized enterprises will benefit from this maintenance. Initially, there were plans to carry out maintenance excluding large corporations, but the structure of the electricity pricing system, which divided industries into A and B types, meant that small manufacturers and root businesses could be excluded. After discussions with the Ministry of Trade, Industry and Energy, it was decided to include large corporations as well.'
―The movie theater admission fee is on the path to being revived under the leadership of the opposition following its abolition.
'It is quite surprising for the government that the movie theater admission fee was revived just two weeks after its elimination. Discussions regarding the revival should be conducted cautiously to maintain the credibility of the policy. Fees must have a clear relation to public utility purposes, and those items that can be replaced by general taxes should not be retained. We intend to discuss the revival of the movie theater admission fee with the Ministry of Culture, Sports and Tourism.'
―What policies do you plan to implement in the future?
'We plan to expand the sustainable management system to other areas. This fee maintenance is significant not just for being a simple amendment process but for establishing a system that can continuously check the fees maintained for a minimum of 20 years to a maximum of 60 years.'
'A comprehensive overhaul of fiscal performance and management systems is also necessary. Through fiscal performance and management systems, the Ministry of Strategy and Finance checks whether the budgets of all ministries are being executed properly and yielding results. Although a reform plan was prepared in 2020, it faces structural limitations in attracting the actual interest and participation of ministries.'
'In the future, we are considering a shift from a penalty-based approach to one that provides incentives to ministries that enhance performance. This aims to strengthen the autonomy and accountability of ministries while improving the essential effectiveness of performance management.'