18th Geonjeonjaejeong Forum 'Next Government Tax Reform Tasks' Discussion
"If Tax Increase Is Inevitable, Corporate Tax Should Be Lowered and VAT Raised"
[Sejong=Asia Economy Reporter Moon Chaeseok] Academic experts have suggested that in order to persuade the public that tax increases are inevitable based on 'welfare expansion,' policy guidelines should be established to lower corporate tax while raising value-added tax (VAT). There was also an opinion that the non-taxable threshold for capital gains tax on single-homeowners should be raised from 900 million won to 1.2 billion won based on market price, with adjustments made once every five years at most.
Professor Oh Moonseong of Hanyang Women’s University, president of the Korean Tax Policy Association, made these claims at the policy forum on 'Tax Reform Tasks for the Next Government' held by the Sound Fiscal Forum on the afternoon of the 18th at the Korea Press Center. Professor Oh emphasized that when imposing taxes, basic principles such as fairness and efficiency, universal tax increases, predictability, and strengthening corporate competitiveness must be observed.
He proposed that if tax increases are unavoidable, the direction should be to lower corporate tax and raise VAT. Professor Oh said, "Corporate tax is a tax item that values efficiency, so in the long term, the corporate tax rate should be revised into a single-rate structure, and the policy direction should be set to lower the rate to strengthen corporate competitiveness." He added, "(Instead) the current 10% VAT rate is much lower than the OECD average of 19.3%, so it is necessary to gradually raise it to about 15%."
Regarding real estate taxation, he emphasized that ▲ comprehensive real estate tax rates should be determined according to the tax amount level, ▲ holding tax should limit excessive weighted imposition, ▲ capital gains tax should be eased, and ▲ acquisition tax should not be regarded as a regulatory target. Professor Oh stressed, "Especially for capital gains tax exemption for single-homeowners, taxation on high-priced housing should be raised from the current actual transaction price standard of 900 million won to 1.2 billion won and updated every 3 to 5 years."
Park Hyungsu, former president of the Korea Institute of Public Finance and head of the K-Policy Platform, diagnosed that a large-scale fiscal deficit of around 100 trillion won will occur annually at least until 2025. He warned that the national debt, which is in the 40% range relative to GDP, will surge to 186% by 2070. He said that although tax increases will be inevitable to strengthen welfare in the long term due to continuing low birthrates and aging, it is necessary to form a consensus on a national debt level acceptable to the public.
Park said, "To increase welfare spending by 0.5% of GDP annually and maintain the national debt ratio below 100% by the end of 2060, the national burden rate, including taxes and social insurance contributions, must be raised by 0.4% of GDP annually, which is 25% higher than the average increase of 0.32% over the past 50 years." He emphasized, "Before implementing full-scale tax increase policies, the pace of welfare spending growth should be lowered to an appropriate level and strong expenditure restructuring should be carried out first."
However, even with a clear justification for tax increases such as 'welfare expansion,' he stressed the importance of creating tax increase standards that taxpayers can accept to enhance public acceptance. Park emphasized, "Future tax increase policies should focus on income taxation (especially income tax) and consumption taxation, but asset taxation increases should be approached cautiously." He added, "Among asset-related tax items, asset transaction taxes should rather be lowered."
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