Self-Employed Card and Cash Receipt Sales Tax Credit Extended for 2 Years

'Sunset Extension Until 2023' Likely to Pass National Assembly Tax Subcommittee... Concerns Raised About Reducing Tax Expenditures

[Sejong=Asia Economy Reporter Son Seon-hee] The special tax credit for credit card sales tax for self-employed individuals, which is set to expire this year, is expected to be extended for two more years. With both the government and opposition parties expressing support, the likelihood of it passing through this regular session of the National Assembly has increased. Following the government's recent decision to provide ultra-low interest loans (up to 20 million won) at an annual rate of 1% to self-employed individuals who did not receive loss compensation, tax benefits will also be granted. The resulting annual tax expenditure is expected to exceed 2.4 trillion won.

According to the National Assembly and the Ministry of Economy and Finance on the 26th, the Tax Subcommittee of the National Assembly's Planning and Finance Committee recently discussed and decided to process the amendment to the Value-Added Tax Act, which extends the application period of the special sales tax credit for credit card and cash receipt transactions by two years until the end of 2023, as proposed by the government. There were no objections from either the ruling or opposition parties to the government's proposed amendment.

The credit card and cash receipt sales tax credit applies only to individual business owners with an annual supply value of 1 billion won or less in industries targeting final consumers, such as food and lodging businesses. It works by deducting 1.3% of the value-added tax paid by consumers, with support available up to an annual limit of 10 million won. Lee Eok-won, the first vice minister of the Ministry of Economy and Finance, stated at the Tax Subcommittee, "We considered the difficult business conditions of small self-employed individuals."

This system was established in 2009 to reduce the burden of card fees on self-employed individuals and to promote 'tax base expansion.' Although the purpose of the system has been achieved, with credit card usage rates already reaching 70%, it has been extended every 2 to 3 years as it has been perceived as support for self-employed individuals. Especially after most small business owners and self-employed individuals in retail, food service, and lodging sectors were hit hard by the COVID-19 pandemic last year, the expiration was imminent, making the extension widely seen as inevitable.

Ryu Seong-geol, a member of the People Power Party, said, "I think it is necessary for now," but added, "Support for small business owners and self-employed individuals struggling due to COVID-19 should be provided through loss compensation." He further pointed out, "If the goals related to the (tax) special measures have been achieved in principle, the sunset should be enforced."