[2020 National Audit] 'Annual 330 Billion Won' Civil Servant Welfare Points, Tax-Exempt Yet Also Eligible for Income Deduction Benefits

Including education and local government positions, payment scale reaches 1 trillion won
Up to 150 billion won in unpaid taxes if income tax is imposed

[Sejong=Asia Economy Reporter Kim Hyunjung] There have been concerns raised that welfare points, amounting to approximately 330 billion KRW annually (based on central government employees), provided to public officials are receiving duplicate tax deduction benefits. Originally, these points are received in a non-taxable state, but during year-end tax settlement, the card usage amount is claimed for income deduction. Compared to similar welfare points in private companies, which are classified as taxable, this is seen as an excessive privilege.

According to data submitted by the Ministry of Personnel Management to Park Hong-geun, a member of the National Assembly’s Planning and Finance Committee from the Democratic Party of Korea, over the past five years, central government employees have received welfare points worth an average of 600,000 KRW per person annually under the name of customized welfare expenses. Based on total amounts, it was 327.5 billion KRW in 2018, 332.9 billion KRW last year, and about 337.1 billion KRW this year.

When including welfare points for education and local government employees, the scale is expected to reach 1 trillion KRW annually. If income tax were imposed on welfare points, the unpaid tax amount would be approximately 150 billion KRW applying the marginal tax rate of 15%, which corresponds to the average salary of public officials, or 60 billion KRW applying the lowest tax rate of 6%.

Welfare points operate through a system where individuals register their personal credit cards, make prepayments, and then claim deductions from their points, with the equivalent amount refunded to their bank accounts. The issue is that the amount used is also included as a card usage amount eligible for income deduction during year-end tax settlement (Article 126-2 of the Restriction of Special Taxation Act on income deduction for credit card usage amounts).

The current non-taxation of public officials’ welfare points is based on a legal interpretation by the Ministry of Government Legislation in 2017. This creates a discrepancy in the application of related laws, as welfare points provided by private companies to employees are treated as earned income and are taxable.

Furthermore, under the current Restriction of Special Taxation Act, items that are either non-taxable or already exempted from tax under other categories are excluded from income deductions. Representative examples include insurance premiums, education expenses, purchases of duty-free goods, and monthly rent amounts that have received tax credits. Regarding this, Assemblyman Park Hong-geun stated, "Even considering the welfare nature, allowing welfare points to be deducted again through credit card income deduction is an excessive benefit," and added, "It is necessary to revise the enforcement decree to prevent double deductions."

Meanwhile, the Ministry of Economy and Finance stated in a response that "the taxation transition of public officials’ welfare points is a matter requiring careful consideration, taking into account the government’s fiscal burden due to increased pensionable salary for public officials." They further explained, "In the case of emergency disaster relief funds, income tax was exempted, but income deduction through credit cards was still applicable."