The government is considering the introduction of an 'income tax linkage system' that adjusts the tax base brackets according to adjustments in taxable income units and inflation rates as a long-term project. It is reported that a new 'earned income tax reform team' is being established within the Ministry of Economy and Finance's temporary organization for tax reform to promote the restructuring of the income tax system. President Lee Jae-myung organized the 'salary defense team' during his tenure as the leader of the Democratic Party of Korea to study policies for reforming the earned income tax.
A senior official in the Ministry of Economy and Finance said on the 18th, "To consider the introduction of the income tax linkage system mentioned by President Lee Jae-myung during his candidacy, a separate team must be organized to study the tax system," adding, "If it is a normal tax reform, the tax division can prepare the reform plan, but if there are long-term tasks that need to be pursued, a separate team must be formed to prepare for it." This senior official indicated the possibility of restructuring the tax reform promotion team as a method for organizing a separate team.
The Ministry of Economy and Finance is currently operating the 'tax reform promotion team' to review the direction of tax reform from a long-term perspective. Within the promotion team, there are two teams operating: the 'inheritance tax reform team' and the 'holding tax reform team.' Inheritance and holding taxes were identified as tax systems that needed normalization at the outset of the Yoon Suk-yeol government. Since the organization was established, the holding tax reform team has focused on alleviating the burden of the comprehensive real estate tax, while the inheritance tax reform team has intensely reviewed the transition of the estate tax structure to an inheritance tax system.
As the outline of the tax reform direction pursued by both teams has been established, evaluations are surfacing within the Ministry of Economy and Finance that the lifespan of this temporary organization has come to an end. The organization of the tax reform promotion team is determined by discussions between the Ministry of Economy and Finance and the Ministry of Interior and Safety on an annual basis regarding its continuation. The fate of the inheritance tax team and holding tax team will be decided in April next year. Within the Ministry of Economy and Finance, there is discussion about disbanding the two teams and establishing a new earned income tax reform team.
Reforming the income tax is also part of President Lee Jae-myung's presidential campaign promises. During a meeting with workers while he was a presidential candidate, he stated, "Salaried workers have a glass wallet. As nominal wages increase, the tax base increases. If you hit that tax base point, the tax rate goes up," adding, "As a result, the proportion of earned income tax in state revenues keeps increasing." He pointed out that while income rises due to inflation and other factors, the tax base bracket continues to maintain its past levels, causing a natural tax increase effect.
The Democratic Party of Korea has officially proposed the 'income tax linkage system' as a solution. Lim Kwang-hyun, a Democratic Party member nominated as the first Commissioner of the National Tax Service under the Lee Jae-myung government, stated during a discussion on rationalizing the taxation of earned income at the 'salary defense team' organized within the party in March, "Since 2020, the earned income tax revenue has increased by 61 trillion won over the past four years," adding, "A significant portion of this is due to tax increases from inflation. In order to protect the disposable income of salaried workers, we need to consider advancing the linkage system.
Within the ruling party, they are also considering changing the income tax taxation unit from individual units to consumption units such as couples or families alongside the linkage system. In this regard, a senior official at the presidential office remarked, "It should not be the case that only earned income earners bear the burden from a tax perspective," adding, "The government should perform its inherent duties regarding income tax reform."
However, Deputy Prime Minister and Minister candidate for the Ministry of Economy and Finance, Koo Yun-cheol, who has been designated as the first economic chief of the Lee Jae-myung government, has adopted a cautious stance, indicating the need to consider the impact on tax revenues. In a written response to questions submitted for his confirmation hearing in the National Assembly, he stated, "The linkage system must be assessed comprehensively considering its impact on tax bases, equity, and financial conditions," adding that regarding the proposal to change the taxation unit from individual units to consumption units such as couples or families, "This is a matter that changes the foundation of the tax system, and the ripple effects are significant. It should be carefully reviewed as national consensus should precede it."
A Ministry of Economy and Finance official explained, "Given that Koo referred to the income tax reform direction as 'comprehensive judgment' and 'cautious examination', it seems unlikely that he will announce specific reform directions in the short term."