South Korean Workers' Tax Burden Rate Increases for 11 Consecutive Years

Last Year, Tax Burden Rate for Single Workers at 24.6%
Increased for 11 Consecutive Years Due to Social Security Contributions and Personal Income Tax Rise

Job fairs are bustling with job seekers. (File photo) Photo by Jinhyung Kang aymsdream@

As social security contributions and personal income taxes increase, the tax burden on Korean workers has also been rising annually.

According to statistics from the Organisation for Economic Co-operation and Development (OECD) on the 30th, the tax wedge for single workers in South Korea last year was 24.6%, up 0.4 percentage points from 24.2% in 2022.

The OECD's tax wedge for workers refers to the proportion of income tax and social security contributions in the total labor costs paid by employers to employees. Social security contributions refer to state-managed social insurance premiums such as health insurance, national pension, and employment insurance.

Last year, South Korea's tax wedge for singles was lower than the OECD average of 34.8%. However, since surpassing 20% at 20.5% in 2012, it has continued to rise for 11 consecutive years through last year. This year, it is highly likely to exceed 25% for the first time. Compared to the OECD average, which has remained around 35% for over 10 years, the upward trend is steep.

The main reason for the increase in the tax wedge for Korean workers is the expanded burden of social security contributions. The share of various social security contributions in South Korea's Gross Domestic Product (GDP) sharply rose from 5.8% in 2012 to 8.2% in 2022. This is interpreted as a result of increasing demand for welfare, with steady growth in national pension and health insurance premiums. The OECD average is 9%.

Due to the increase in social security contributions, South Korea's total tax burden rate reached 32.0% in 2022, up 2.2 percentage points from 29.8% the previous year. The total tax burden rate is calculated by dividing the sum of various taxes and social security contributions such as national pension and health insurance by GDP. South Korea's total tax burden rate rose by 9.6 percentage points over 12 years from 22.4% in 2010. This is the fastest increase among OECD countries. During the same period, the OECD average total tax burden rate only rose 2.5 percentage points from 31.5% to 34.0%.

Taxes levied on personal income are also on the rise. The share of personal income tax in South Korea's GDP increased from 3.5% in 2012 to 6.5% in 2022. Although still lower than the OECD average of 8.3%, it is rising sharply and approaching the average.

Last year, the countries with the highest tax wedges were Belgium at 52.7%, followed by Germany at 47.9%, Austria at 47.2%, and France at 46.8%.

Japan was at 33%, the United Kingdom at 31.3%, and the United States at 29.9%, all below the average. Countries with lower tax wedges than South Korea included Switzerland at 23.5%, Israel at 23.2%, New Zealand at 21.2%, and Mexico at 20%.

The OECD analyzed that inflation in recent years has been a cause of increased tax wedges for workers in various countries. Among the OECD member countries surveyed, 23 countries saw an increase in the tax wedge for single workers last year, while 13 countries experienced a decrease.

The OECD explained, "Although nominal wages have increased in most countries, real wages have actually decreased due to inflation," adding, "Inflation increases the tax burden on workers and diminishes the value of tax reliefs and cash benefits they receive."