[Exclusive] Parents of Multiple Children Receive 'Revolutionary' Income Tax Reduction... Democratic Party Pushes 'N Wins out of N' French Low Birthrate Measures

Tax Rates Differ Based on Having 1, 2, or 3+ Children
Greater Tax Benefits for Larger Families
Kang Daesik: "Reducing Economic Burden of Child Rearing"

Legislation is being promoted to significantly reduce income tax as the number of children increases. As South Korea's birth rate continues to decline, this adopts the French-style tax system, which is the only advanced country to have solved the low birth rate problem.

According to the National Assembly on the 2nd, Kang Dae-sik, a Supreme Council member of the People Power Party, has prepared an amendment to the Income Tax Act that applies differentiated comprehensive income tax rates based on the number of children, and has entered the co-sponsorship process with fellow lawmakers. The National Assembly Act requires the consent of more than 10 fellow lawmakers to propose a bill.

Currently, in South Korea, income tax rates vary according to income amount. The taxable income, which is the income amount minus various income deductions, is divided into eight brackets ranging from a minimum of 14 million KRW to a maximum of 1 billion KRW. The taxable income is determined by deducting personal exemptions such as the 'minimum living expenses' spent on dependents from the income amount. Income tax is calculated by multiplying the tax rate of each bracket by this taxable income, and tax reductions based on the number of children are applied again during year-end tax adjustments. If there is one child aged 8 or older, an annual income deduction of 150,000 KRW is granted; for two children, 300,000 KRW, and so on. Even with three children, the deduction is only 600,000 KRW.

The amendment prepared by Representative Kang is a method that applies differentiated income tax rates according to the number of children, representing a complete overhaul of the income tax system. The eight-step taxable income brackets remain unchanged, but the tax rate is reduced by 1 percentage point per child. If both spouses have income, each can receive income tax reductions based on the number of children, and adopted and foster children are also recognized as children.

This amendment is modeled after France's income tax calculation method called the 'N parts system.' Introduced by France in 1946 amid a low birth rate crisis, the N parts system divides the family's total income by the number of household members to calculate income tax per person. The more family members there are, the lower the tax burden.

Earlier this year, a similar call to adopt the N parts system as a low birth rate measure was raised in Japan's National Diet. Toshimitsu Motegi, Secretary-General of the Liberal Democratic Party, urged its introduction as a "revolutionary tax system," and other opposition parties, including the Constitutional Democratic Party, also expressed opinions that it should be considered.

Based on a simulation of the income tax reduction effect according to the number of children using Representative Kang's amendment, a salaried worker earning 50 million KRW annually currently pays 3,727,500 KRW in income tax if they have one child (including personal deductions of 820,000 KRW plus 15% tax on income exceeding 14 million KRW, excluding tax credits). However, under the amendment, the income tax rate of 13% is applied, resulting in 3,062,500 KRW, which is 665,000 KRW less than the current amount. For two children, the current income tax is 3,502,500 KRW, but with the amendment, it is 2,550,000 KRW, reducing the burden by 952,500 KRW. For three or more children, the tax burden can be reduced by 1,210,000 KRW compared to the current system. The higher the annual salary, the greater the absolute amount of reduction. If there are no children, the existing tax rates apply as is.

However, the amendment differs from France's system in that it is based on the number of children rather than the number of household members. For taxpayers in the taxable income bracket below 14 million KRW, the current income tax law sets a minimum tax rate of 6%, so even if divided by the number of household members, it may be difficult to apply a rate below the minimum tax rate, according to some reviews. Previously, Park Sung-jun of the Democratic Party of Korea proposed an amendment to the Restriction of Special Taxation Act similar to the French-style income tax reduction method.

Representative Kang explained the purpose, saying, "One of the biggest causes of low birth rates is the economic burden related to childbirth, care, and education of children. If income tax rates are differentiated according to the number of children, the economic burden of raising children will be reduced, which is expected to help solve the low birth rate problem."

However, some experts pointed out that caution is needed since the income tax system will be completely changed. Tax accountant Jung Hae-wook said, "The direction of the amendment to benefit large families is good, but the method of calculating comprehensive income tax rates will become more complicated with four additional methods," and advised, "If the goal is to reduce taxes, increasing the amount of personal deductions rather than the tax rate is also an option."