[Inside Chodong] National Assembly Must Conduct Rigorous Tax Law Review

Tax Law Reviews Rushed Year After Year
This Year, Review Schedule Should Be Set Early in the Regular Session

The first regular session of the 22nd National Assembly has begun. This session is likely to address tax laws as a key issue more than ever, due to controversies surrounding the financial investment income tax, comprehensive real estate tax, and inheritance tax even before the session started. However, reflecting on past tax law reviews in the National Assembly, there is growing concern about whether this year’s tax law review can be properly conducted.

After the general election, the political sphere has been engaged in a power struggle over tax reform. This is because the presidential and general elections clearly revealed voter sentiment divided by the pros and cons of real estate taxation. Tax policy has already become a political matter rather than symbolizing political or economic standards or values in our society. How did tax law become so politicized?

Tax law reviews have often been rushed and superficial. According to the National Assembly Act, the tax law review, which determines next year’s budget and revenue, must be completed by November 30. This is a desperate measure to prevent the budget from being processed after the year ends, but tax law reviews have repeatedly suffered from a lack of time. Ultimately, tax laws have degenerated into political bargaining chips linked to the budget bill or have been handled behind closed doors by the government and a few ruling and opposition members without leaving a single A4 page of record.

In fact, in 2022, when the ruling and opposition parties clashed sharply over the issue of corporate tax cuts, the tax subcommittee only reviewed the bill once and then ended. The final decision was made through negotiations between the leadership of both parties, but the only record the public can verify is a single agreement on budget processing between the parties. Even last year, when there was relatively less disagreement between the parties, time was insufficient.

How can this change?

First, preparations must be made in advance to avoid being pressed for time. A proposal was made last year in the tax subcommittee to complete the initial review of the tax laws submitted by the government early in the regular session. This is worth considering. The tax subcommittee, which reviews tax laws, has yet to appoint a subcommittee chair, so it must quickly complete the subcommittee formation and schedule ample time for tax law review. If discussions are delayed until after the national audit, the bill review will again be left to the leadership. Both ruling and opposition parties should also organize their internal positions in advance and narrow down the issues.

Furthermore, both parties need to take time to seriously consider the consequences of tax law amendments through simulations and other means. In addition to political calculations, economic repercussions must also be carefully considered. Increasing transparency by keeping transcripts and predicting the impact of tax changes are also necessary. The essential condition is the effort to secure time. If the tax system becomes tangled, it can distort the economic structure by changing the incentive structure for economic activities, beyond just tax revenue issues.

Finally, ways to secure tax revenue must also be considered. Following last year, this year also faces a tax revenue shortfall. Although there are problems such as corporate tax reductions and failures in tax revenue forecasts, structural difficulties in fiscal conditions arise due to increased mandatory welfare expenditures influenced by aging. Next year’s budget increased by 3.2%, but welfare spending rose by 7.4%. Since there are no nationwide elections next year, serious consideration of fiscal solutions is necessary.

Former Justice Party lawmaker Jang Hye-young’s words about tax laws during the budget bill processing in the plenary session come to mind: “This (tax law) is not just another vote. It is an expression of belief in the community and our social contract.”