Next Year 13 Tax Credits Repealed

The government announced that it would repeal 13 kinds of tax credits on various savings accounts from next year. The rate of tax credit corporations receive on the investment will be reduced from the current 10% to 7% to balance with the ongoing interest rates.

In addition, the government will beef up measures to prevent the rich from taking advantage of the loopholes in the Inheritance Law, and add 9 more industries including motion pictures industry and tourism to the category in which special tax benefits are given to small and medium businesses.

Furthermore, to enhance the volume of credit card use, the government will continue giving 20% of the money used via credit card as tax credit on the income until 2005. But the rate for the money used through debit cards will be raised to 30%.

All of these decisions were included in The 2003 Tax Reform Bill and came at a meeting held on August 28, 2002, in the Bank Center in Myung Dong, Seoul. The meeting was a part of the activities of International Development Reviewing Board (Director Park Yong Sun, also chairman of KORCHAM). At the meeting, Vice-Premier Chun Yoon-chul was also on hand.

From next year, it is expected that the financial status of the government will get worse due to, for example, the beginning of the payments on the public funds and the worsening insurance and pension funds. Thus, in order to widen the revenue sources, the government has decided to cut down on various tax credits which have been less effective in terms of supporting.

The administration also has decided to seal off the tax loopholes in capital transactions. After the economic crisis, the rich have got richer and the poor have got poorer. In addition, owners of companies have unlawfully passed the companies to their children without paying taxes through devices like merger, capital increasing or decreasing.

Accordingly, the government plans to apply the “Categorical Taxing” under which similar cases can be treated the same for the purposes of taxing even though no code is provided for those cases.

In the meanwhile, the government has announced that it is conducting a research on a tax system called “Consolidated Taxing System” and may introduce it next year. Under the system, a corporation and its affiliates are considered one entity in levying tax.

Choi Kyung-soo, a high-ranking official, confirmed, “From reducing the size of tax credits, we are expected to make additional 830 billion won revenue. We will use it for paying back the public funds. Out of the amount, 700 billion won will be levied on corporations and the rest will be collected from the public.”

Kwang-Hyun Kwang-Am Cheon Kim Kwang-Am Cheon kkh@donga.com iam@donga.com