As the time to take care of year-end tax settlement returns, the hometown love donation program is drawing attention again. The program allows individuals to donate to local governments and receive a tax credit and a thank-you gift in return. Local governments can secure needed funds with the donations, and donors can enjoy tax savings along with thank-you gifts in a mutually beneficial arrangement.
◇ Benefit of 130,000 won for a 100,000 won donation…donations surge at year's end
In 2023, the first year of the hometown love donation program, the number and amount of donations were about 526,000 and 65.06 billion won, respectively, but last year they rose to about 774,000 and 87.93 billion won. This year, through October, the number and amount came to about 466,000 and 56.87 billion won, up 76.9% and 65.8% from a year earlier. Because the program offers year-end tax credit benefits, donations concentrate in December. Last year, half of all donations were made in December alone.
As the program gains popularity, the government and the National Assembly are reviewing ways to increase the tax credit further. The key question is whether to break the "100,000 won wall."
Under the program, donations up to 100,000 won receive a full tax credit. That means if you donate 100,000 won, you get the entire 100,000 won back in your year-end tax settlement. On top of that, a thank-you gift is provided up to 30% of the donation amount, so a 100,000 won donation yields benefits worth 130,000 won.
For donations exceeding 100,000 won, a 15% tax credit rate applies. Adding a 1.5% local government tax brings the effective tax credit rate to 16.5%. If you donated 200,000 won, 100,000 won would receive a full tax credit, and the remaining 100,000 won would be credited at 16.5%, meaning you would get 116,500 won back. Including thank-you gifts worth 60,000 won, or 30% of 200,000 won, the total benefit would be 176,500 won.
Because only donations up to 100,000 won receive a full tax credit, most donations are capped at 100,000 won. According to the Ministry of the Interior and Safety, as of January–October this year, about 450,000 of the roughly 466,000 donations were 100,000 won or less. About 96% of all donations effectively hit the 100,000 won wall.
◇ Raise the full tax credit threshold to 200,000 won or 500,000 won
In July, the Ministry of Economy and Finance, announcing next year's tax revision plan, said it would raise the tax credit rate to 40% for the 100,000–200,000 won band. The aim is to lift the 100,000 won wall at least somewhat.
In the National Assembly, many argue that more aggressive benefits are needed. Bills to amend the Act on Restriction on Special Cases Concerning Taxation to expand tax credits for hometown love donations have been introduced by lawmakers Lee Man-hee, Bok Gi-wang, Kim Tae-ho, and Chung Hee-yong. Of these, bills by Democratic Party of Korea lawmaker Bok Gi-wang and People Power Party lawmaker Chung Hee-yong would raise the donation amount qualifying for a full tax credit to 500,000 won. The People Power Party bill by Kim Tae-ho would raise the full tax credit band to 200,000 won.
The Strategy and Finance Committee's tax subcommittee plans to review lawmakers' bills alongside the government plan while discussing next year's tax revision. If lawmakers' proposals are accepted, the full tax credit threshold for hometown love donations could rise to 200,000 won or 500,000 won starting next year.
The tax subcommittee agreed with the amendment's purpose of invigorating the hometown love donation program. Over the past five years (2020–2024), local government finance self-reliance declined from 45.2% to 43.3%, and an increase in hometown love donations could help ease local fiscal strains, according to the analysis. In the case of the People Power Party bill by Lee Man-hee, which proposes raising the full tax credit threshold to 200,000 won only for depopulated areas, there is also analysis that it could help address the crisis of declining populations in the provinces.
However, some note that because the program has been in place for only three years, there has not been sufficient verification of its policy effects. Since its introduction, the cap for tax credit eligibility has risen from 5 million won to 20 million won, and for special disaster zones, a 30% tax credit rate applies to the band exceeding 100,000 won up to 20 million won, among several amendments—raising questions about the need for additional changes.
In its review materials, the tax subcommittee said, "The system of granting a full tax credit on the entire donation applies only to political donations and hometown love donations, and it is a special tax support generally limited to small donations of 100,000 won or less."