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South Korean Tax Hikes A 'Last Resort'

by Mary Swire,, Hong Kong

06 February 2015

South Korea's Finance Minister Choi Kyung-hwan has opined that increasing taxes should be the "last resort" in providing revenue for the Government's promised enhancements to the country's welfare services.

During a ministerial meeting on February 4, Choi confirmed that, at the moment, he is prioritizing tax administration and compliance improvements to cover the shortfalls in tax revenue experienced in South Korea over the past few years, which have been largely caused by the country's continued sluggish economic recovery. He reiterated that there are no plans to hike tax rates or introduce new taxes.

President Park Geun-hye, when elected in 2012, had promised to make substantial increases to welfare spending without raising taxes. Since then, the Government has maintained its economic stimulus measures on domestic demand and made a pledge not to raise personal and corporate income tax rates – particularly on middle- and low-income taxpayers – for the foreseeable future.

The credibility of that pledge was, however, called into question recently when the Government had to agree immediate changes to the personal income tax code, as a reaction to the outcry over the reduced refunds that followed modifications made in the 2014 Budget.

That was followed by a warning from the Chairman of South Korea's ruling Saenuri party, Kim Moo-sung, that the Government needs to make a choice between higher taxes to fund its welfare reforms, or a low tax burden with reduced public welfare provisions.

Choi's reaction was that it is up to the National Assembly to make that choice and to decide the level of welfare services that would be acceptable – for it and for ordinary citizens. The Ministry of Finance, he said, would then be involved in deciding how that spending could be funded.

TAGS: compliance | Finance | tax | economics | tax compliance | fiscal policy | corporation tax | ministry of finance | tax rates | Korea, South | individual income tax

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