[Yoon Administration Tax Law] Worker Tax Burden Reduced by Up to 540,000 Won... Meal Allowance '200,000 Won per Month' Tax-Exempt

2022 Tax Reform Plan

[Asia Economy Sejong=Reporter Son Seon-hee] The government is pushing for the first income tax reform in 15 years. By raising the lower taxable income brackets, the tax burden on low-income workers is expected to decrease. Additionally, considering the increased burden of dining-out expenses due to rapidly rising prices, the income tax exemption limit for meal expenses has been doubled from the existing 100,000 KRW to 200,000 KRW.

On the 21st, the Ministry of Economy and Finance announced the "2022 Tax Reform Plan" containing these details. This tax reform plan is the first announced since the inauguration of the Yoon Suk-yeol administration, focusing on "reducing the tax burden on low- and middle-income groups" and includes measures aimed at stabilizing people’s livelihoods. Ko Gwang-hyo, Director of the Taxation Office at the Ministry of Economy and Finance, explained the purpose of the reform, saying, "Compared to other countries, Korea’s income tax revenue proportion is low and the number of taxable income brackets is too many," and "The highest tax rate bracket is too high, and the taxable income threshold has remained at 12 million KRW for about 14 years."

The current income tax taxable income brackets consist of eight levels, among which the lower two bracket thresholds have been raised from 12 million KRW to 14 million KRW, and from 46 million KRW to 50 million KRW, respectively. In other words, the tax burden for those with taxable income of 50 million KRW or less has been reduced. This applies not only to wage earners but also to comprehensive income earners and capital gains earners.

For example, a wage earner with an annual total salary of 78 million KRW (taxable income 50 million KRW) will see their income tax decrease from 5.3 million KRW to 4.76 million KRW, a reduction of 540,000 KRW. A wage earner with a total salary of 30 million KRW (taxable income 14 million KRW) will see their tax amount decrease from 300,000 KRW to 220,000 KRW, a reduction of 80,000 KRW. However, these are examples based on average taxable income per salary level, and actual tax amounts may vary depending on the number of dependents and the level of income and tax deductions.

However, criticism has been raised that this income tax reform will further increase the already excessively high proportion of tax-exempt earners. As of 2020, about 37.2% of wage earners were tax-exempt despite earning income, meaning this proportion will increase. Regarding this, Director Ko said, "It is estimated that the tax-exempt rate will increase by about 1%," but added, "This is temporary, and since the proportion of tax-exempt earners has been decreasing by about 2% annually, it is expected to continue to decline in the mid to long term."

For high-income earners with total salaries exceeding 120 million KRW, the wage income tax credit limit will be reduced from the existing 500,000 KRW to 200,000 KRW.

Along with this, considering the recent sharp rise in prices, the non-taxable limit for workers’ meal expenses has been raised from the existing 100,000 KRW per month to 200,000 KRW. For a worker earning an annual total salary of 80 million KRW, applying average income and tax deductions, it is estimated that the tax burden will be reduced by about 290,000 KRW. Including the income tax reduction, the maximum tax burden reduction per person is expected to be around 800,000 KRW.