Government and Uri Party Set to Cut Income Tax by One Percent

In a move to turn around domestic spending, the government and the ruling Uri Party will issue 5.5 trillion won in government bonds to expand finances and will reduce taxes on income, interest, and dividends by one point.

In an attempt to reduce taxes on small and midsized corporations, it will double the special tax credit rate for them and repeal luxury taxes on PDP TVs and other commodities, in which the country has a competitive edge.

Rep. Hong Jae-hyung, the Uri Party policy committee chairman, announced the plans at a meeting on economic policy on August 30.

“We have decided to pursue a policy mix which includes fiscal expansions, tax cuts, and many other measures to stabilize public livelihoods and turn around the economy,” he said.

As the Uri Party has decided to issue 5.5 trillion won worth of government bonds for 2005, next year’s budget will be 132.5 trillion won, up by 12.3 trillion won from this year’s total general and additional budget of 120.1 trillion won.

“We will reduce the tax rates of each income bracket, ranging from nine percent to 36 percent, by one percent to create a bracket of eight percent to 35 percent to lessen the burden for wage earners and business owners,” said Rep. Hong. Income tax cuts will affect a total of eight to nine million taxpayers, or six to seven million wage earners, and two million business owners.

To assuage pressure that low interest rates put on rentiers, the party plans to lower taxes on interest income and dividend income by one percent from 10 and 15 percent respectively.

For small commercial owners and manufacturers, who are directly suffering from the brunt of falling domestic spending, it will double the tax break for small and midsized corporations to 10 to 30 percent from the current five to 15 percent.

The Uri Party is also mulling a temporary cut in fuel transport taxes in preparation for rising oil prices.

Young-Hae Choi yhchoi65@donga.com