Earned Income Tax To Rise 26% Next Year

Class A earned income taxes imposed on salary earners will be 26 percent higher in 2006 than in 2005, while next year’s composite income taxes imposed on the self-employed will be lower than this year’s.

As a result, it is expected that there will be murmurs that “only salary earners are prone to more taxation.”

According to a detailed statement of estimated revenue of income tax items in 2006 presented by the Ministry of Finance and Economy (MFE) to the National Assembly on Sunday, the government’s estimated income tax revenue of 2006 is 27.6777 trillion won, up 8.6 percent from this year.

In terms of items of taxation, the composite income tax levied mainly on the self-employed will be 4.7529 trillion won, and the Class B earned income tax imposed on foreign firm employees will be 14.9 billion won, down by 3.8 percent and 50 percent from this year, respectively. On the other hand, the government will collect 12.321 trillion won, 26 percent more Class A earned income taxes next year compared to this year.

In terms of reasons for the estimated increase in 2006 Class A earned income taxes, the MFE explained that nominal wages were expected to rise 7.2 percent and that the number of salaried taxpayers is expected to increase.

However, some say that this estimated revenue is unreasonable. The reason is because economic depression could very possibly keep the wage increase rate below 7.2 percent next year, and if government’s tax reduction and exemption measures being reviewed by the National Assembly are rejected, the number of salaried taxpayers will not rise all that much.

The MFE estimated that Class A earned income taxes collected this year would amount to 10.7029 trillion won, 12.1 percent (1.1564 trillion won) more than the original estimated revenue level (9.5465 trillion won).

Class A earned income taxes have been collected more than the estimated revenue to the tune of 582.50 billion won (7.5 percent) more in 2003, and 1.5619 trillion won (18.9 percent) more in 2004, respectively. However, composite income taxes have been lower than planned for three consecutive years since 2002, and this year will also likely see a 12.7 percent (661 billion won) lower amount than the estimated revenue.

This means that while Class A earned income taxes, taxes that come directly from the wallets of the salaried, may have been over-imposed, the income tax returns of the self-employed may not have been filed in good faith.

If the 2006 estimated income tax revenue bill is passed, the per capita tax imposed on salaried people (not including those who are tax-exempt) will be about 1.50 to 1.53 million won.

Per capita Class A earned income taxes would increase by 500,000 won in just six years, after exceeding one million won in 2000 for the first time.

In particular, the tax burden will likely become much larger in that most Class A earned income taxes are levied on the upper 20 percent of working people with an annual income of more than 34 million to 35 million won.

Ki-Jeong Ko koh@donga.com