Income Tax for Top Earners to Rise to 45%

  • By Choi Kyu-min

    July 23, 2020 13:24

    The government will raise income tax for billionaires from 42 percent to 45 percent. The revised tax rate affects 16,000 Koreans who earn more than W1 billion a year and is expected to net state coffers an extra W900 billion a year (US$1=W1,198).

    The latest measure is part of broader tax reforms aimed at boosting the country's economic growth as it reels from the coronavirus epidemic. It will be submitted to the National Assembly in September.

    The new top rate is even higher than in some rich countries like Germany (42 percent) and the U.S. (37 percent).

    But in advanced countries the gap between the maximum and minimum tariff is around three times, while the difference will expand to a maximum of 7.5 times in Korea, placing the biggest tax burden on a small minority.

    Korea's taxation system is already skewed, with almost 40 percent of taxpayers exempt from any obligations, while high-wage earners shoulder the biggest burden. Some 38.9 percent of salaried workers do not pay any income tax, which is much higher than in the U.K. (0.9 percent), Japan (15.4 percent) and the U.S. (32.5 percent).

    That means the top 10 percent of earners shoulder 78.5 percent of all taxes, compared to the U.S.' 70.6 percent, the U.K.'s 59.8 percent and Canada's 53.8 percent.

    Earnings from stock investments over W50 million a year will also be subject to a 20-percent capital gains tax, which the government claims will affect only the top 2.5 percent of stock investors.

    Earlier, the government almost doubled taxes on real estate holdings and drastically increased transfer and acquisition taxes for multiple-home owners.

    Joo Won at the Hyundai Research Institute said that doubling or tripling the tax burden on high earners "goes against the principle of fair taxation," yet will still not be enough to pay for the government's expanded welfare spending.

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