Reimplementation of Tax Prepay System Mulled

The Strategy and Finance Economy said yesterday that it could reintroduce a system next year under which financial companies must prepay taxes when they collect interest on investments in bonds and beneficiary certificates.

The system was abolished in June last year to invigorate the financial industry. As tax revenues are expected to fall next year, however, the government is reviewing the system’s reintroduction.

Financial companies must pay corporate taxes of 22 percent of the interest they earn from investment in bonds, certificates of deposit, beneficiary certificates and promissory notes. If the system is implemented again, they must prepay 14 percent in taxes upon receiving interest and the remaining eight percent the following year when reporting corporate taxes.

All companies except those in the financial sector are subject to the system.

Of 86 tax reduction and exemption systems due to expire at year’s end, the ministry is sorting out those whose extensions are unnecessary. The government’s stance is to abolish such systems that have accomplished their intended purposes.

In addition, the ministry could also impose individual consumption taxes on home appliances with low energy efficiency from next year and use the taxes to promote purchases of high efficiency appliances.

The government has stepped up efforts to collect taxes because of an expected revenue shortfall stemming from last year’s tax cuts and deterioration of fiscal soundness due to massive fiscal spending for overcoming the economic crisis.

The budget deficit this year will reach an estimated 51 trillion won (41 billion U.S. dollars), or five percent of GDP, up three times from 15.6 trillion won (12.4 billion dollars) last year.

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