Summary and Deliberation Issues of the Revised Tax Act Enforced in 2019
Published on 14 December 2018
Published by Property & Consumption Tax Analysis Division of the Estimates & Tax Analysis Department
After discussions on 575 tax bills related to national taxation composed of 19 government proposals and 556 parliamentary proposals at the regular sessions of the 2018 National Assembly, a resolution was reached on December 8th regarding the budget proposal and Tax Act Revision. Accordingly, 294.8 trillion won was confirmed as the tax revenue budget for 2019.
As of November 30th, the Taxation Subcommittee of the Strategy and Finance Committee (SFC) reached a resolution on the proposals submitted by the SFC on 17 out of 27 laws upon 10 rounds of deliberation since November 16th, and decided to suspend the passage of 6 laws including the Procedure Law on Punishment of Tax Criminals. Meanwhile, the SFC reached a resolution on December 8th regarding its proposals on legislation regarding four issues including the Corporate Tax Act, Value-Added Tax Act, Gross Real Estate Tax Act and the Restriction of Special Taxation Act. Among the 27 tax laws subject to deliberation, upon reaching a resolution at the plenary session of the National Assembly on 21 tax laws related to national taxation between 7-8 December 2018, leaving 6 pending items, the deliberation process for the Tax Act revision and the tax revenue budget proposal was concluded.
The budget for national tax revenue submitted by the government to the National Assembly initially amounted to 299.3 trillion Korean won, but the figure was reduced by 4.5 trillion over the deliberation process and confirmed as 294.8 trillion won. This figure reflects the –3.3 trillion won from raising the local consumer tax rate during the National Assembly deliberation process; -1.3 trillion won from temporarily cutting the oil tax by 15% after announcing the proposed tax revenue budget; and 0.3 trillion won from raising the gross real estate tax rate.
The three main items of the tax Act revision include a significant increase of worker and childcare benefits in the form of EITC or CTC as well as the increase of gross real estate tax rates and local consumption tax rates. To begin with, worker and childcare benefits were significantly increased to enhance support for the lower and middle class. On July 18th, 2018, the government announced a proposal for significantly expanding the tax benefits for workers as part of its Jobs and Income Support Measures for the Lower Class. This proposal was approved and included in the 2018 Tax Act Revision in its original form, and the government-proposed measures to enhance childcare benefits were also approved at the Plenary Session. According to the revised Tax Act, the eligibility criteria for workers’ benefits was significantly relaxed such as by abandoning minimum age, income and asset requirements for applicants; and the eligible beneficiaries for self-sufficiency benefits have been expanded along with an increased allowance.
Next, the gross real estate tax rates have been increased to enhance the equity of the holding of assets. Even after the announcement of the Tax Act Revision on gross real estate taxation, real estate prices witnessed a spike led by the Seoul market, followed by additional reinforcement measures on September 13th. The real estate market was eventually stabilized and the proposed September 13th measures, including those proposed by legislators, were approved. The new Tax Act includes revisions made through the September 13th measures targeting owners of multiple homes within an Adjustment Zone, including tax increases, an increase in the tax burden ceiling as well as a staged increase of the rate of fair market value (enforcement decree)—which reflects the taxpayers’ tax base.
Finally, in order to increase local tax revenues, which come from the independent financial resources of local governments to solidify fiscal decentralization, the transition rate of the local consumption tax among revenue collected through the national value-added tax has been increased. Consequently, the local consumption tax rate is expected to be raised by 4%p from the current 11% to 15% in 2019, and according to the government’s Measures to Pursue Fiscal Decentralization (Oct 30), the rate will be further increased by 6%p in 2020.