10 % Decrease in the Income Tax Rates in the 2002 Year-end Tax Adjustment

The income tax rate will down by 10% and the deduction rate from an earned income will sharply increase in the year-end tax adjustment this year. As a result, it is expected that reduced tax payment will average 110,000 won per a wage earner in Korea.

On November, 21, the Office of National Tax Administration released “the guideline for the 2002 year-end tax adjustment.” In the guideline, the agency said that if this year, wage earners generate the same amount of income compared to the previous year, it is estimated that reduced tax payment for13 million wage earners will total some 1.5 trillion won through the 2002 year-end tax adjustment (115,300 won per a Korean wage earner).

Last year, Korean wage earners benefited from the yearend tax adjustment, paying reduced taxes of 1.2 trillion won in total because of the newly introduced deductions from pension and insurance and the expansion of deductions from credit card uses.

This year, the year-end tax adjustment will apply 10% lowered income tax rate collectively. In other words, people with less than 10 million won of an average annual income will be the subject of 9% income tax rate application, down from 10 %, people with somewhere between 10 million and 40 million won of the average annual income for 18% from 20%, people with somewhere between 40 million and 80 million won annual income for 27% from 30%, people with more than 80 million won for 36% from 40%, respectively.

In addition, the income tax deduction ceiling for an earned income will be rise by 5%, up to 45% from 40% for the total income (the annual income minus tax-free income) of more than 5 million won to less than 15 million won and to 15% from 10% for more than 15 million won and less than 30 million won, respectively.

Not only that, the expenses for buying glasses with the aim of improving eyesight and hearing aids will be included as medical expenses in the year-end tax adjustment.

Also, the deduction ceiling for the pension premiums will be extended to the full payment from in half and additional tax deductions for the elderly with the age of over 65 and the physically disabled will also increase to 1 million won from 500,000 won a year, respectively. As a result of the extension of the scope of donations that will be the subject of income tax deductions, scholarships donated to private universities will be included in the tax deductions, which was only possible for people within a 10% total income tax base.

Kwan Chun-Ki, a director of the withholding income tax division at the Office of National Tax Administration, said, “ when the year-end tax adjustment is completed, the Office look into cases of inappropriate tax deductions through falsified bill issuances.

If people are caught in the process, they will have to pay a 10% additional tax.”

Jin-Hup Song jinhup@donga.com