On December 23, South Korea’s government released further details of thoroughgoing tax changes aimed at boosting the ailing economy. The changes include cuts to income tax, corporation tax and concessions on capital gains tax.
South Korea’s income tax system will have an across-the-board tax reduction of 2% in 2009. The South Korean tax system currently levies between 8% and 35% income tax on earnings. The top bracket begins at KRW88m. Under the new system, which will be fully introduced by 2010, the range will be reduced to between 6% and 33%.
Under the new plans, salaried workers will receive increased tax allowances, the basic allowance which previously stood at KRW1m will now be increased to KRW1.5m. Residents of South Korea will be able to deduct KRW9m if they are supporting a child through university, in addition those with children in kindergarten will be able to deduct KRW3m, up from the previous level of KRW2m. The government has also offered concessions for those who have had to pay medical expenses during the tax year; they will now be able to deduct up to KRW7m.
Capital gains tax allowances, which previously allowed citizens who have owned a home for twenty years or more to reduce capital gains payments by 80%, will now be extended to those who have only owned their home for ten years.
The minimum corporate tax rate, which is currently levied at 13% on companies with profits of less than KRW100m, will be reduced to 11% on profits up to KRW200m in 2009. Companies earning in excess of KRW200m will be charged at the upper corporation tax rate of 22% in 2009, down from 25%. The upper and lower rates will fall further to 10% and 20% respectively by 2011.
The government also announced proposals to set up a fund in January to aid the country's ailing financial sector, and to replenish capital within its financial institutions. The government has said that KRW20 trillion would be put into the fund to try and boost lending and thus consumer consumption..
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