Government Announces New Tax Charges

Starting next year, a 10 percent value added tax will be imposed on all private school tuition fees, such as cram schools and driving schools.

Value added taxes are also likely to be imposed on services and products that are closely related to our daily lives, including usage fees for funeral halls, apartment management expenses, and taxes on feminine hygiene products.

The self-employed will have to pay 350,000 won more on average in taxes in the future because the tax credit on one percent of revenue generated from credit card purchases will be abolished.

Tax rates on soju and whisky will also be increased starting this year through 2015.

According to the report titled: “Taxation Reform Plans: Middle and Long Term” acquired exclusively by Dong-A Ilbo yesterday, the government has decided on 62 tax reforms that include the above-mentioned increases. Starting the second half of this year, the government will work on tax code revisions that will include 43 out of the 62 planned reforms.

According to the plans, a 10 percent value added tax will be imposed on tuition fees for every private institute. Therefore, if the tuition fee for an English institute is 300,000 won a month currently, it will rise to 330,000 won next year. There were 64,591 private institutions registered with the Ministry of Education and Human Resources as of last year, with a total of 4,479,681 students.

In its report, the Ministry of Finance and Economy made clear its intention to push ahead with the plan no matter what, saying, “Some in our society will raise opposing voices, citing that an imposition of a VAT on tuition fees for private schools will increase the burden on parents and that it will hamper the training of skilled workers. But we will persuade them by explaining that the additional tax revenue generated from the VAT on tuition fees will be re-invested into educational facilities.”

So far, self-employed businesses such as restaurants, beauty salons, and bakeries have benefited from the tax credit on one percent of revenue generated from credit card purchases. This tax credit will be phased out according to the new tax proposal.

In 2003, 2,168,000 self-employed businesses saved 750 billion won due to the tax credit on revenue generated from credit card purchases. If this tax credit is abolished, each self-employed business will have to pay about 345,900 won more in taxes.

In addition, pharmacies, leasing companies, franchisees, veterinary hospitals, pet beauty shops, and skin care shops will not be subject to simplified taxation any more according to the plan. Businesses subject to simplified taxation receive lower tax rates. Therefore, an exemption from simplified taxation means an increased tax burden.

According to the report, additional tax deductions for one or two-person households, which have stirred up controversy recently, will be abolished starting this year.

The government also plans to raise tax rates on liquor starting this year, from the current 75 percent to 150 percent by 2015.

A reduction in the number of retail investors exempt from capital gains taxation on share-selling revenue will be introduced in 2008.

Park Byung-won, the deputy minister of finance and economy, said in a regular briefing on February 2, “The ministry plans bring its proposal before a public hearing after consulting with Cheong Wa Dae and the political parties.”

Another senior official at the Ministry of Finance and Economy said, “Even though the taxation reform plan would be faced with public opposition, the government will implement the plans as scheduled and adhere to the essential features of the plan.”

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