Starting this year, the government began taxing as earned income the discounts on in-house products that corporations provide to employees (staff). There were criticisms that this amounted to a "stealth tax hike" on office workers, and in fact, Hyundai Motor employees were tallied to have paid at least several billion won more in earned income tax this year because of the system.
According to data Hyundai Motor submitted on the 16th to the office of Cheon Ha-ram of the Reform Party, a member of the National Assembly's Strategy and Finance Committee, the number of vehicles sold with employee discounts to staff from January to August this year totaled 15,169. The vehicle prices amounted to 884 billion won, and the market value excluding general discounts available even to non-employees was 880.2 billion won.
During last year's tax law revision, the Ministry of Economy and Finance said it would tax as earned income the price benefits that corporations such as Samsung Electronics, LG Electronics, and Hyundai Motor offer for in-house product purchases as part of employee welfare. Under existing regulations, employee discount amounts were already regarded as earned income, but actual taxation was rarely carried out. The Ministry of Economy and Finance (MOEF) moved to codify this and tax it precisely.
The standard the Ministry of Economy and Finance (MOEF) presented at the time was to apply tax exemption only up to 20% of a product's market value, and to tax as earned income the remainder of the employee's discount after subtracting the tax-exempt limit.
Hyundai Motor offers employees discounts of about 8% to 30% depending on years of service. According to the data Hyundai Motor submitted, the discount amount provided to employees from January to August this year was 240.7 billion won. Subtracting the tax-exempt limit—20% of the market value (880.2 billion won)—leaves about 66.7 billion won. That portion becomes taxable as earned income. Applying the average effective earned income tax rate of 6.5% as of 2023 yields an estimate that roughly 4.335 billion won in additional taxes was paid from January to August this year.
Many corporations besides Hyundai Motor operate employee discount programs. Expanding this across corporations means office workers inevitably pay more in earned income tax. According to an in-house survey conducted last year by Cheon Ha-ram's office, if employee discounts at Samsung Electronics are taxed, employees would have to pay an additional 315.4 billion won in earned income taxes. It was also estimated that employees at corporations such as Korean Air, Asiana Airlines, Shinsegae Department Store, and Samsung C&T would pay from several billion to tens of billions of won more in taxes.
As the Ministry of Economy and Finance (MOEF) moved to tax employee discounts, voices in politics criticized it as a "stealth tax hike" on office workers, whose wallets are already fragile. Data submitted by Hyundai Motor effectively confirms that the tax burden on office workers has increased.
Cheon Ha-ram said, "The government says it clarified the scope of tax exemption, but in effect it did nothing more than raise taxes on middle-class office workers," and noted, "nickel-and-diming even areas of earned income that were not taxed violates tax justice."