Reflecting Opposition Demands... "To Support Domestic Consumption"
Basic Deduction Expanded from Children to Grandchildren
To revitalize domestic consumption, the income tax deduction for credit card use will be temporarily expanded next year. The limits and income criteria for monthly rent tax deductions, as well as the child tax credit for the second child, will also be expanded.
On the 3rd, the Ministry of Economy and Finance announced that these tax law amendment provisions were newly established and approved during the National Assembly's Planning and Finance Committee's tax law review process. These were not included in the '2023 Tax Law Amendment Proposal' announced by the government at the end of July.
First, if next year's credit card usage exceeds 105% of this year's amount, an additional income deduction of 10% on the excess amount (up to 1 million KRW) will be applied. This reintroduces the income deduction measure for increased credit card consumption implemented in 2021 during the Moon Jae-in administration to promote a 'consumption rebound.'
For example, if card usage increases from 20 million KRW this year to 31 million KRW next year, the additional deduction of 1 million KRW is calculated based on the excess amount over 105%, which is 10 million KRW [31,000,000 - (20,000,000 * 105%)]. A worker with a taxable income exceeding 88 million KRW would see a tax burden reduction of 350,000 KRW (35%), and a worker with 55 million KRW income would see a reduction of 240,000 KRW (24%).
Earlier, Lee Jae-myung, leader of the Democratic Party of Korea, stated at a press conference last month, "To expand household consumption capacity and revive domestic demand, we will establish a temporary consumption tax credit for one year." The establishment of this provision partially reflects the opposition party's demand by compromising with an income deduction method.
Additionally, the limits and income criteria for monthly rent tax deductions will be raised. The income criterion will increase from the current total salary of 70 million KRW to 80 million KRW, and the limit will rise from the current annual rent amount of 7.5 million KRW to 10 million KRW. The government expects that about 30,000 more tenants will benefit from the income criterion adjustment and about 14,000 more from the increased limit.
Measures to encourage childbirth were also added at the National Assembly stage. The child tax credit amount for the second child, applicable to about 2.2 million households, will increase from 150,000 KRW to 200,000 KRW. The tax credit amounts per child?first, second, and third or more?will increase from the current 150,000 KRW, 150,000 KRW, and 300,000 KRW to 150,000 KRW, 200,000 KRW, and 300,000 KRW, respectively.
The basic deduction target has also been expanded from children to grandchildren to support grandparent-grandchild households. The government estimates that about 133,000 grandparent-grandchild households will see a tax reduction effect of at least 150,000 KRW per household.
Furthermore, the non-taxable limit on dividend income from cooperative association shares such as NongHyup, SuHyup, Forest Cooperatives, Credit Unions, and Saemaeul Geumgo will be increased (from 10 million KRW to 20 million KRW in shares).
The non-taxable limit on income from aquaculture will be raised from 30 million KRW to 50 million KRW. Applying a 15% tax rate to the increased 20 million KRW, the government estimates that the tax burden for aquaculture households will decrease by up to 3 million KRW annually (20,000,000 * 15%).
All of these provisions were newly established during the Planning and Finance Committee's review stage.
Also, measures such as ▷support for reshoring of overseas enterprises ▷tax incentives for opportunity development zones to promote regional investment ▷tax credits for overseas resource development investments ▷tax support for video content production ▷strengthening income deductions for long-term mortgage interest payments ▷expansion of tax exemption for corporate childbirth and childcare allowances passed the standing committee as originally proposed by the government. Gift property deductions related to marriage and childbirth, and tax burden relief measures for business succession were amended and approved.
These measures are expected to be approved by the National Assembly plenary session as supplementary budget bills for next year's budget.
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