Paying Daily and Irregular Workers with Wage Cards

The Korea Institute of Public Finance announced on June 21 that it would ponder whether a Korean version of the Earned Income Tax Credit (EITC) is valid and how to implement the system in Korea. The agency will report the results of the consideration to President Roh Moo-hyun in August.

The report of the Korea Institute of Public Finance, which was commissioned by the EITC Research and Planning Board under the presidential advisory committee for eliminating the gap between the poor and the rich, and discrimination, will be submitted to the National Assembly during the September regular session after going through public hearings and the billing process of the government.

Finance Researcher Kim Jae-jin said, “The government needs to grasp the real income of low-income earners to determine the subject for EITC benefits in which the government returns taxes that were paid by low-income earners to them until they reach a certain level of income. Therefore, financial institutions will issue EITC cards, which can be used only for paying salary, to businesses, and employers will pay their workers through the cards instead of cash. Then, the government will be able to estimate people’s real income since financial companies first should report the contents of settlement to the National Tax Service.

Low-wage earners or the small self-employed that want to get a tax credit will be required to report their income when they report their earnings at the end of the year. The National Tax Service ultimately will compare one’s income report and the first registration of financial institutions.

The Korea Institute of Public Finance will also suggest the government raise the limits of debit cards for tax credits and oblige the small self-employed to write accounting books in order to eliminate tax havens. The more that small self-employed use debit cards, the more their incomes are exposed.

It is also highly possible that the government will make employers report salary statements of their daily workers through the website of the National Tax Service.

Chang-Won Kim legman@donga.com changkim@donga.com