Government to refund taxes retroactively
Ruling party to submit a bill to revise Income Tax Law in April
The government and the ruling Saenuri Party agreed Wednesday to submit a bill to revise the Income Tax Law, and apply it retroactively for 2014 tax returns, bowing to mounting protests from salaried workers.
The move appears to be an attempt to placate the more than 15 million employees who are furious over the changed income tax codes. This is the first time the government has applied tax law retroactively for tax returns.
The ruling party said that it will submit a bill to revise the law in the National Assembly in April, expanding tax refunds for families with children, households with newborn babies and single people.
“We will expand tax refunds in three key sectors. They are families with multiple children, households which gave new births and single men and women,” said Finance Minister Choi Kyung-hwan at an urgent meeting with the governing party at the National Assembly in Seoul.
The announcement came a few days after the government faced fierce criticism from taxpayers, opposition parties and even the ruling party over its new income tax return codes. The government said it was initially designed that most people would have to pay less income tax, but failed to persuade taxpayers who got upset over what they see as an increased amount of income tax.
The main opposition New Politics Alliance for Democracy (NPAD) suggested that the ruling party launch a four-party committee, in which the government, the governing party, opposition parties and representatives of salaries workers discuss how to revise the bill. The NPAD said that it is willing to talk with the Saenuri Party over the issues related to the revision, includ- ing applying it retroactively for 2014 tax returns.
The finance minister apologized for causing “inconveniences” to taxpayers, the first one since the controversy brewed. “I am sorry for inconveniences to people and burdens on them over the tax return codes.”
Economists from global banks said that a larger tax burden on Korean employees will hamper private consumption, playing the role of a “wet blanket” to the sluggish fourth-largest economy in Asia.
Ronald Man, an economist of HSBC, said that new tax return regulations will cool off consumers’ sentiments, cutting households’ disposable income further.
“A larger tax burden will reduce households’ disposable income and, in turn, private consumption.In particular, households may first respond by scaling back expenditures on discretionary items, such as transporta- tion, eating out and communication products,” said Man in an e-mail interview with The Korea Times.
The Hong Kong-based economist said that the Korean government needs to raise the wages of employees, by giving corporate tax incentives to companies which boost the salaries of their workers.
“We think changes in corporate tax to incentive companies to raise wages can benefit the economy, although this does not necessarily mean higher taxes for corporations. For example, the government can build on measures introduced in its July 2014 stimulus package, such as providing larger tax cuts for companies that raise wages.”
Employees showed their frustrations over the income tax codes. “The government says that employees paid less income tax last year, but I don’t think so. I never paid less tax,” said a 46-year-old Kim, a manager of an insurance company in Seoul, asking not to be named.
The finance ministry said earlier this week that taxpayers “misunderstood” the new income tax regulations because the ministry replaced the “more pay-more refund” system with a “less pay-less refund” system.
Kim, a single woman, said that she may pay some 3 million won ($2,770) more of income tax this year, compared to the previous year, according to an online income tax calculator provided by the National Tax Service. She said it is a big financial burden on her.