Vice Prime Minister Kim Says, “Illicit Funds Will Be Subject to Taxation”

“We will levy tax on politicians who have received illicit political funds,” said Vice Prime Minister and Finance and Economy Minister Kim Jin-pyo on February 6.

“Illicit political funds without certain favors asked will be levied with gift tax, and those with certain favors asked will have income taxes,” said Kim in a regular briefing, adding, “There is a problem in that the National Tax Service (NTS) does not levy tax on the illicit funds because of the ‘efficacy rule of taxation’ which states that forfeited illicit funds according to the related laws cannot be taxed.”

“With the change in the taxation prescription set by the Fundamental National Tax Law, any politician who has received illicit political donations since July 1994 are subject to taxation,” said Inspector of Property and Consumption Tax Lee Jong-gyu at the Finance and Economy Ministry. “The exceptions are the cases where the funds were accepted by the party, a tax-exempted organization, or where the funds had been forfeited by the government.”

“There was not a case where illicit political funds were taxed, but we will levy tax on them from now on with the prescription of five years for income taxes and ten years for gift tax,” added Lee, emphasizing, “The illicitness of the funds (whether or not it was over-quota or without receipts) will be judged by the National Tax Service or the National Election Commission.”

The comments made by Vice Prime Minister Kim will likely cause impacts in the political circles since it was induced by the recent illicit fund disputes and since it can be closely related to political fund-raising for the 4.15 general election as well.

If the tax investigation goes awry and lose fairness, it will likely become another object of political contention between the governing party and the opposition.

NTS Head Lee Yong-sup had previously commented, “The current tax laws are unclear about levying tax on parties or politicians that have received illicit political funds.”

The Finance and Economy Ministry is also promoting a method to inquire of the Korea Financial Intelligence Unit (FIU) to report to the prosecution department of the police in regard to a political fund suspected of money laundering.

The related laws are met with criticisms of its effectiveness and fairness because only the information related to political funds among financial dealings of more than 20 million won, which are required to be reported to judiciary bodies, are currently reported to the National Election Commission.

Jin-Hup Song Ji-Wan Cha jinhup@donga.com cha@donga.com