[Income Tax Debate] Reflecting Inflation Rate... Annual Income Tax Decreases by 400,000 KRW for a Four-Person Household with a 69 Million KRW Single Income

[Income Tax Debate]
Assuming Income Tax Brackets Increase Proportionally with Inflation Rate
Simulation of Expected Tax Burden Amount

[Asia Economy Sejong=Reporter Kwon Haeyoung] If the government adjusts the income tax brackets for earned income, which have remained unchanged for the past 15 years, in proportion to the inflation rate, the income tax for a single-earner household of four with an annual salary of 69 million KRW is expected to decrease by about 400,000 KRW per year.

On the 14th, Asia Economy conducted a simulation using the National Tax Service's Hometax tax simulation calculator. Assuming the government adjusts some earned income tax brackets (under 12 million KRW, under 46 million KRW, under 88 million KRW), which have remained unchanged since 2008, to the consumer price inflation rate (31.7% compared to June 2008), it was analyzed that a worker under these conditions would pay an annual income tax of 5,582,250 KRW.

Under the current system, the taxable income for Mr. A, a single-earner head of a four-person household with an annual salary of 69 million KRW, is 46,695,000 KRW after deducting various exemptions (earned income deduction of 13.2 million KRW, personal exemptions including spouse and two minor children totaling 6 million KRW, and estimated pension insurance amount of 3,105,000 KRW). Since the taxable income exceeds 46 million KRW, a tax rate of 24% is applied. Based on this, Mr. A’s income tax is calculated to be 5,986,800 KRW.

If the government adjusts the income tax brackets by reflecting the 31.7% inflation rate over the past 14 years, the brackets would be raised to ▲under 15.8 million KRW (tax rate 6%) ▲under 60.58 million KRW (tax rate 15%) ▲under 115.9 million KRW (tax rate 24%). With this adjustment, Mr. A’s taxable income bracket would shift from the previous 24% rate to 15%, resulting in an annual tax saving of 404,550 KRW.

If Mr. A is assumed to be a single-person household with relatively fewer deductions, the tax reduction would be even greater. Currently, the income tax is 7,066,800 KRW, but with a 31.7% increase in the tax brackets, the tax burden would decrease by 809,550 KRW to 6,257,250 KRW.

Lower-income workers are also expected to benefit from tax reductions if the tax brackets are raised. For example, Mr. B, a single-person household earning 25 million KRW annually, currently has a taxable income of 13,375,000 KRW after deductions and pays 926,250 KRW in income tax at a 15% rate. However, if the tax brackets are raised to reflect inflation (from under 12 million KRW to under 15.8 million KRW), a 6% tax rate would apply, reducing the income tax by 123,750 KRW annually to an estimated 802,500 KRW.

According to the National Tax Service, as of 2020, 48.5% of taxpayers fall within the earned income tax brackets of 12 million to 46 million KRW (7.79 million people) and 46 million to 88 million KRW (1.66 million people). These lower- and middle-income brackets bear 52.8% of the total earned income tax, amounting to 23.3 trillion KRW. If the government raises the income tax brackets under 88 million KRW, about half of income tax payers could benefit from reduced tax burdens.