Tax Breaks Nearly Tripled After Rice Subsidy Introduced

Tax cuts on capital gains taxes from transferring farmland have nearly tripled since 2005. The incentives are known as why Koreans illegally apply for a rice farming subsidy and evade gift taxes.

According to a report ruling Grand National Party lawmaker Chin Soo-hee received from the National Tax Service yesterday, tax exemptions on transferring paddies farmed for eight years or more reached 1.6 trillion won (1.2 billion U.S. dollars), up 2.7 times from 581.5 billion won (432.34 million dollars) in 2005.

The number of those benefiting from such tax breaks jumped almost twice from 45,310 in 2005 to 82,665 last year.

The Special Tax Treatment Control Law allows farmers to receive up to 100 million won (74,349 dollars) in tax deductions if they can prove they have farmed the field for eight years or more.

To receive tax breaks when selling farmland, certain landowners illegally receive the subsidy and submit receipts to the tax office as proof that they personally cultivated the farmland.

“Tax exemptions on capital gains taxes have dramatically increased not only because individual transactions increased, but also because the (previous) Roh Moo-hyun government increasingly expropriated land for numerous development projects, such as the creation of ‘innovative cities,’” a tax official said.

Tax breaks for transferring a paddy to a farmer’s child also increased from 28.1 billion won (20.8 million dollars) over 2,251 cases in 2005 to 44.8 billion won (33.3 million dollars) over 3,171 cases last year, up 1.7 times.

Gift taxes can be cut up to 100 million won if farmers hand down their land to their children age 18 or older.

Tax experts say absentee landlords with farmland in a rural area exploit the law to pass on ownership of their land to their children.

Many absentee landlords reportedly receive the subsidy to qualify as farmers and receive a certificate on their children’s farming from the head of a farming village so that they can receive a tax break of 10-50 percent on gift taxes.

koh@donga.com