Tax Plan Hits Working Couples Hardest

Taxes on the approximately five million working couples nationwide will increase by up to 700,000 won starting next year.

This comes from the government’s decision to repeal additional tax deductions for households with one or two persons. According to the income tax code, most working couple households are regarded as one or two person households.

Working couples without children will see an annual tax increase of 160,000 won to 700,000 won. Couples with one child will see an increase of 120,000 to 520,000 won, and couples with more than two children will see an increase of 80,000 to 350,000 won, depending on their income level.

At a press conference yesterday, the Ministry of Finance and Economy (MOFE) officially announced it was pursuing the abolition of additional tax deductions for households with one or two persons to gain the financial resources to fight low fertility rates, aging, and for a social safety net.

Kim Yong-min, a MOFE taxation official, said, “The repeal of the current system is being reviewed because it undermines birth promotion due to the fact that the per capita tax deduction increases for smaller families.”

Despite the government’s explanation, the tax deduction for working couples with children will decrease by one to two million won.

This is because when both ends of working couples are wage earners, according to the current tax code, they each receive additional deductions because both are classified as one or two person households.

For example, a working couple without children is classified as two one-person households, and receives an additional tax deduction of one million won each.

A working couple with one child is classified as a two-person household and a one-person household and receives a deduction of 1.5 million won.

When there are two children, a couple is defined as two two-person households and receives a one million won deduction.

Once this system is scrapped, additional tax deductions for working women will disappear, making it difficult for the government to avoid criticism that the new system goes against the government’s policy of promoting women’s economic activities.

Some point out that the explanation: “This system is being repealed because it undermines birth promotion,” is nonsense.

There are no official government statistics on the number of working couples in Korea. But a 2003 Kookmin Bank study based on a sample of 1,902 households shows working couples make up 31.7 percent of all households, meaning about five million households out of a total of 15.9 million are likely working couple households.

Jung Eun-sook of Korean Womenlink said, “Our official stance is that it is not reasonable to secure financial resources to combat low fertility rates by raising taxes on one to two-person households, which are mostly comprised of working couples.”

Professor Kim Joon-young of Sungkyunkwan University said, “It is desirable in the mid to long term to secure tax revenue by reducing the number of those receiving tax exemptions, but because domestic demand is sluggish, this could reduce middle class consumption.”

Hyun-Jin Park witness@donga.com legman@donga.com