W26 Tril. in Tax Cuts Over 5 Years Announced

The income tax for a four-member household with an annual income of 40 million won will drop at least 530,000 won in 2010.

Capital gains tax on 300 million won in profit earned from an apartment sale will decrease 10 million won in amount over the same period.

The government announced yesterday its tax reform plan for this year, including tax cuts worth 26.4 trillion won over the next five years for income, real estate and corporate taxes. The plan was confirmed in a meeting of senior government and party officials and a plenary session of the parliamentary tax examination committee.

After notice of legislation and review by the Government Legislation Ministry, the bill will be submitted to the National Assembly Oct. 2. If passed, it will take effect late this year at the earliest.

Under the plan, income tax rates will be reduced two percentage points in all income brackets. The rate will be lowered from the range of eight to 35 percent to six to 33 percent by 2010. Moreover, income deductions will expand to 1.5 million won per person from one million won to benefit households with more children.

The basic deduction for earned income will be cut to help the self-employed, whose income has gotten more transparent since the introduction of the cash receipt system.

Under the new rules, taxes on property, inheritance and gifts will be drastically lowered.

The new rules will lower capital gains from the range of nine to 36 percent to six to 33 percent and raise the capital gains deduction of a household owning a single house for more than ten years from 40 percent to 80 percent. Also, the capital gains tax will apply to owners of a single home worth more than 900 million won, instead of more than 600 million won.

At the same time, the requirements for tax breaks will be toughened, allowing those who buy one house in Seoul or five surrounding areas such as Gwacheon and the Bundang district of Seongnam to get tax incentives if they own and live in the home for at least three years, instead of three years of owning and two years of living.

The maximum rate of real estate holding tax (comprehensive real estate and property taxes) will be halved year-on-year from 300 percent to 150 percent. Comprehensive property tax will be imposed on 80 percent of the appraised price of a house, instead of a heavier tax as scheduled.

Also, the range of inheritance and gift taxes will be lowered from 10-50 percent to six to 33 percent and the tax base will be raised.

The corporate tax will be lowered from between 13 and 25 percent to between 10 and 20 percent by 2010. At the same time, the threshold for the lower corporate tax bracket will be raised from 100 million won to 200 million won (Assessed value is calculated based on net income).

Under the new rules, almost 90 percent of businesses, or 320,000 firms, are expected to save tax. Due to criticism that large corporations will enjoy a bigger tax cut, the government will delay their tax cuts by a year.

If all the changes are passed by the National Assembly, the tax burden ratio (taxes as a percentage of GDP) will fall from 22.7 percent last year to 22.3 percent in 2009.

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