Opinions from government circles suggest that this year's tax law amendment announcement might be delayed compared to usual. In previous years, the tax amendment has been announced at the end of July. However, this year, the change in administration requires additional time to reflect the philosophy of the new government's national administration.
According to the Ministry of Economy and Finance on the 10th, the timing for this year's tax law amendment announcement is undecided. Every year, the ministry convenes the Tax Development Review Committee at the end of July to collect and announce changes to the next year's tax regime.
The Ministry of Economy and Finance was preparing to align the tax amendment with this schedule this year as well. However, the early presidential election and administration change have emerged as variables. With the new government taking office, the direction of the tax amendment has inevitably shifted. A ministry official noted, "We are creating a framework for the tax amendment, but the details are still pending," and added, "It might be difficult to finalize it by next month."
When former President Park Geun-hye was impeached without completing the term, the Moon Jae-in administration, launched in May 2017, also slightly delayed the tax amendment announcement. That year's tax amendment was revealed on Aug. 2. Currently, within the Ministry of Economy and Finance, there is talk that even early August might be tight to prepare and announce the tax amendment.
The tax amendment offers a chance to showcase the government's philosophy on tax collection by codifying situations where existing measures might require more or fewer taxes. Notably, this amendment is the first to be announced since President Lee Jae-myung's inauguration, necessitating greater attention.
◇ worker tax cut likely to emerge… corporate tax benefits may target strategic industries only
President Lee has advocated for tax cuts for salaried workers, often referred to as 'glass wallets,' since his time as party leader due to the belief that while the Yoon Suk-yeol administration actively pursued tax cuts for corporations or the ultra-wealthy, workers faced de facto tax increases. Consequently, a tax amendment focusing on reducing the tax burden for workers is expected to emerge.
One noteworthy proposal is the income tax indexation system. Last November, when launching the 'Glass Wallet Project,' President Lee highlighted, "While inflation rises, real wages don't, and even nominal wages increase, the tax base remains fixed, effectively forcing tax increases on workers." He then raised the agenda of the earned income tax indexation system. However, during the presidential race, the People Power Party seized the issue, excluding it from the Democratic Party of Korea's final policy book.
Instead, President Lee emphasized the principle of 'worker tax cuts' in his promises. Justification for this was to alleviate the burden of living costs. He pledged to ▲ raise the income criteria for rental tax credits and expand the range of eligible dwellings ▲ increase the credit card income tax credit rate and limits based on the number of children ▲ further expand child tax credits ▲ reform a family-friendly income tax system considering couple income and number of children. Some of these are expected to appear in the first tax amendment proposal.
Regarding corporate tax, President Lee defined the reduction of the top tax rate as part of a tax cut for the wealthy. Back in 2017, while serving as mayor of Seongnam, he argued that the corporate tax rate for large corporations earning over 50 billion won in operating profit should be raised to 30%.
However, during the presidential election, he stated that industries related to national strategic technologies like batteries, crucial for global competitiveness, would receive tax benefits. This marks a partial shift in his stance on corporate tax, implying that only businesses vital for national economic development would receive tax benefits.
President Lee also proposed the domestic production promotion tax system, which credits corporate tax based on the production and sales volume for corporations that produce and sell domestically. This is referred to as the Korean version of the Inflation Reduction Act (IRA) as it aims to prevent the overseas movement of corporations such as secondary battery and semiconductor companies.
◇ inheritance tax as pinpoint tax cut… cautious on real estate taxes
Regarding inheritance tax, instead of lowering the top tax rate to benefit even high-income earners, a more likely approach is to limit conditions to only reduce the tax burden for some. Earlier this year, President Lee opposed lowering the top inheritance tax rate.
When the People Power Party argued that the current top inheritance tax rate of 50% (60% including control premiums) should be lowered to 40%, then Democratic Party of Korea chief President Lee said only a few wealthy individuals owning billions would benefit from lower rates. He added, "Such preferential tax cuts for the ultra-rich exacerbate already severe polarization," asserting, "Such privileges should not be allowed." Consequently, the possibility of a reduction in the top inheritance tax rate being included in this tax amendment is slim.
President Lee agrees on the need to reduce the inheritance tax burden for the middle class. In March, he proposed abolishing spousal inheritance tax, aligning with the People Power Party's stance. However, the government proposed not a complete repeal but increasing the deduction limit from 5 billion won to 10 billion won.
As for real estate taxes, President Lee seems unlikely to follow the Democratic Party of Korea's traditional approach. Last month, appearing on MBC radio, he stated, "We won't try to control housing prices through taxes," emphasizing the idea of "meeting supply and demand by increasing supply." This suggests he would not impose punitive taxes on multi-homeowners, learning from the Moon Jae-in administration's inability to curb housing prices solely through demand suppression.
Many expect the reconstruction excess profit recovery scheme (REPRS) to remain. REPRS requires reclaiming up to 50% of the excess profit when a member earns over 80 million won from reconstruction.
Unlike candidate Kim, who pledged to abolish REPRS, President Lee did not mention it in his policy book. Currently, it is likely that REPRS will remain in place. Last month, Democratic Party of Korea policy chairman Jin Sung-joon stated on radio, "Excessive profits from reconstruction should be returned to society to some extent for the public good."