Hong Nam-ki, Deputy Prime Minister for Economic Affairs, attended the full meeting of the Budget and Accounts Committee held at the National Assembly on the 30th for the review of the 3rd supplementary budget proposal and gave a presentation./Photo by Yoon Dong-joo doso7@
[Sejong=Asia Economy Reporter Kim Hyunjung] The government is set to reform the value-added tax (VAT) simplified taxation criteria for the first time in 21 years. In this process, the threshold for simplified taxpayers with annual sales around 48 million KRW will be raised, and the exclusion of certain industries will be reconsidered, which is expected to reduce the burden on small self-employed business owners.
According to the Ministry of Economy and Finance on the 1st, the government plans to include this VAT simplified taxation reform proposal in this year's tax revision bill, potentially incorporating it into the '2020 Tax Revision Bill' as early as the end of this month. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said at the National Assembly Budget and Accounts Committee yesterday, in response to a question from Park Hong-geun of the Democratic Party about the possibility of raising the VAT simplified taxation threshold or expanding exemption targets, "We are reviewing the matter with the intention of including it in the tax reform content."
The current simplified taxation system, which classifies individual business owners with annual sales under 48 million KRW as simplified taxpayers to allow them to report and pay VAT through simplified procedures, was established in 2000 when the special taxation system was abolished. Previously, businesses with sales between 48 million KRW and 150 million KRW, which were classified as simplified taxpayers, were absorbed into the general taxation system during this process. Additionally, under current law, industries such as mining, manufacturing, wholesale, real estate sales, and entertainment establishments are excluded from simplified taxation except in certain specified cases. The VAT payment exemption threshold, originally around 24 million KRW, was raised to 30 million KRW starting last year.
Since the simplified taxation system was introduced over 20 years ago, the threshold has not been adjusted, leading to many calls, especially from the political sphere, to raise the simplified taxation threshold and expand the tax exemption scope for small businesses. Currently, both ruling and opposition parties have jointly proposed multiple amendments to the Value-Added Tax Act to raise the simplified taxation threshold. Some of these amendments propose raising the threshold to as high as 120 million KRW.
Recently, as consumer and economic sentiment sharply declined due to the COVID-19 pandemic, the government introduced Article 108-4 of the Restriction of Special Taxation Act to ease the burden on small businesses by raising the simplified taxation application threshold to 80 million KRW; however, this measure is set to expire at the end of this year.
The number of beneficiaries enjoying reduced tax payment burdens as simplified taxpayers has been decreasing annually. According to the National Tax Service Statistical Yearbook, the number of simplified taxpayers decreased by 13.1%, from 1,779,011 in 2013 to 1,563,140 in 2018. The proportion of simplified taxpayers among all individual business owners also declined from 32.3% to 27.8% during the same period.
However, it is unlikely that the simplified taxation threshold included in this tax revision bill will be significantly adjusted to the level demanded by the political sphere. A Ministry of Economy and Finance official said, "We are aware of calls to protect small businesses and reflect inflation rates," and "We are reviewing the reform of the simplified taxation threshold." However, the official added, "It will be difficult to make a significant adjustment to the level requested by the political sphere."
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