Government Set to Tighten Tax Reductions on Credit Card Use

Income tax returns, which are available without proof of purchases in a year-end tax report, will increase to one million won from 600,000 won.

Tax returns for the use of credit or debit cards will also be possible when such spending is more than 15 percent of income. Medical bills charged to credit cards will not be accounted for tax returns.

The Ministry of Finance and the Economy announced revisions of the tax code for 2004 on September 1, following a series of policy meetings with the ruling Uri Party. The government and the ruling party will submit three bills related to the income tax code revisions to the regular session of the National Assembly on September 21 after their approval by the Cabinet.

Under the revisions, which increase absolute tax returns to one million won from 600,000 won, wage earners who make less than 30 million won annually for a four-member family will receive 50,000 won in tax cuts, and wage earners with less than 20 million won will receive 16,000 won. The increase of absolute tax deductions will affect 750,000 taxpayers.

Tax returns on credit or debit card spending will kick in when 15 percent of income is spent via cards. Currently, 10 percent triggers tax deductions.

Credit card payments of medical bills or country club memberships will no longer be tax-deductible.

The exemption of value-added taxes on the management fees of 25.7 square meters-housing units will be extended to the end of next year, cutting 48,000 won in taxes for each of the one million households nationwide.

Concerning big corporations, the absolute tax rate, the minimum rate of taxes the companies have to pay after deductions, will decrease to 13 percent by two percent from 15 percent per 100 billion won.

Interest payments by a corporation whose debt/capital ratio is more than 400 percent will be treated as cost starting next year.

Illegal political donations, which have not been taxed for lack of legislation, will be levied on as gift taxes.

Jong sik Kong Chi-Young Shin kong@donga.com higgledy@donga.com