"With 33% Tax, Even Lotto 1st Prize Leaves Nothing? How About Other Countries? [NewsSeolCham]"

(22) Lottery Winnings Tax, How Do Other Countries Compare?
UK, France, Japan, etc. Exempt Winnings from Tax
Government "No Plans to Raise Prize Money" but Expectations Rise
Lotto Prizes Decrease While Real Estate Prices Rise
"33% Tax Cuts Winnings Further," Outcry Grows

Expectations for an increase in Lotto prize money are growing. As prices for real estate and other goods soar, there are calls to discuss raising the prize amounts. There are also voices advocating for lowering the tax rate imposed on winnings.

The anticipation for higher Lotto prizes swelled after Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok recently stated at a press briefing, "Lotto is indeed an issue worth gathering opinions on. The Lottery Commission can hold public hearings to collect feedback," leaving the possibility open. However, the Ministry of Strategy and Finance’s Lottery Commission quickly dismissed this as merely an intention to gather opinions, not a consideration of raising the prize money.

Complaints about the low Lotto prize money have existed for a long time. For example, the US lottery "Powerball" has had a record jackpot of 2.08 trillion won, whereas the highest Lotto prize in Korea was 40.7 billion won, recorded in April 2003. However, this amount was from when the Lotto ticket price was 2,000 won per game. After the government lowered the ticket price to the current 1,000 won in August 2004, the average first prize amount for Lotto became about 2.4 billion won.

Companies that act as purchasing agents for the US Powerball lottery also began to emerge. This was due to the increasing number of people dreaming of a windfall by winning the astronomical US lottery jackpots. However, in November last year, the Supreme Court ruled that mediating or inducing the purchase of overseas lottery tickets domestically constitutes the crime of illegal lottery ticket brokerage, effectively blocking the path for US lottery purchasing agents.

It is clear that the Korean Lotto first prize amount is difficult for an average worker earning median income to earn. Nevertheless, the analysis suggests that the rising real estate prices are behind the growing demand for higher Lotto prize money.

The Korea Institute of Public Finance’s report titled "Determination of Lottery (Lotto 6/45) Prices" (2023) analyzes that people’s expectations for Lotto have changed due to the sharp rise in real estate prices after COVID-19. According to the report, a Lotto first prize winner in 2004 received 3.53 billion won. Considering that the average sale price of an 84㎡ apartment in Seoul at that time was 291.78 million won, this was a large amount enough to buy 12 apartments.

However, as of 2022, the first prize amount was 1.99 billion won, while the average sale price of a Seoul apartment was 1.18894 billion won. While apartment prices nearly quadrupled, the prize money actually decreased. This is why the perception that "it is no longer possible to turn one’s life around with Lotto alone" is increasing, as there is little money left after buying one apartment with the prize. The report notes, "Although the absolute amount of the Lotto first prize is by no means small, the disappointment some Lotto consumers feel about the first prize amount is not entirely unfounded."

Accordingly, there are also claims that the tax imposed on Lotto winnings is excessive. When winning the lottery, a 22% tax is applied up to 300 million won, and 33% on amounts exceeding 300 million won, and there is a need to lower this. According to current tax law, if someone wins 2 billion won in the lottery, the winner can receive 1.34 billion won after taxes.

What about other countries? Many countries impose taxes on lottery winnings above a certain threshold. In the US, winnings over $5,000 (about 7 million won) are subject to a 24% withholding tax, and additional taxes are collected by state governments. However, some states such as California, Florida, Texas, and Washington do not impose state taxes. Spain and Italy also withhold 20% tax on winnings exceeding 40,000 euros (about 60 million won) and 500 euros (750,000 won), respectively.

On the other hand, some countries do not tax lottery winnings. Countries including the UK, France, Canada, Australia, and Japan do not impose taxes on lottery winnings.