Seoul seeks to tamp down criticism of new tax code proposal

The government sought to tamp down criticism Friday that a new tax code proposal for next year is designed to squeeze revenues from salaried workers for big-budget campaign projects, an easy taxation target with transparent incomes. The proposal, announced Thursday, made top front-page headlines in most newspapers, many of them along critical lines that the administration of President Park Geun-hye ended up relying on ordinary wage earners, mockingly called "glass wallet" holders, to raise funds for her campaign projects. "Gov't resorts to wage earners after all," one newspaper headline read. The new taxation system for next year was watched closely to see how the government would raise funds for expensive welfare and other programs Park promised during last year's election. Those projects are estimated to cost some 135 trillion won (US$121 billion). During the campaign, Park promised to raise the money without increasing tax rates. The proposed tax code overhaul, which is subject to parliamentary endorsement, centers on scaling back tax benefits for salaried workers. About 4.34 million people, who account for about 28 percent of workers, will see their tax burden increase next year, according to government estimates. Those whose annual income ranges from 40 million won to 70 million won will have to pay an average 160,000 won (US$143.6) more in taxes, and the figure will rise to 330,000 won and 980,000 won for income brackets of 70-80 million won and 80-90 million won, respectively. "Would this increase the burden only on wage earners because their incomes can be looked clearly into? Part of that is true," Cho Won-dong, then senior presidential secretary for economic affairs, said during a briefing. "Then does this tax revision proposal target only wage earners? It does not." Cho stressed that wage earners have been provided with tax benefits as they usually pay more tax than the self-employed. With the use of credit cards expanding explosively, however, incomes of the self-employed became more transparent, and therefore, the tax benefits for wage earners should be scaled back a little, he said. He rejected criticism that the new code runs counter to Park's pledge not to increase tax rates to raise funds for her campaign projects, arguing that rolling back tax benefits is different from hiking tax rates. Cho also said that scaling back tax benefits is one of the ways to raise funds that Park put forward during the presidential campaign, along with greater efforts to regularize the underground economy. Cho emphasized that the new tax code also calls for phasing out most of the income deduction programs and replacing them with tax deduction ones in a bid to provide more benefits to low- and middle-income earners. Income deduction is designed to deduct government-designated expenses from an individual's annual salary before determining his or her taxable income. Under the program, more spending means less taxable income so it is regarded as a system that provides more benefits to wealthy people. "We are very sorry on the part that income deductions are reduced. But we hope this (increase) is an endurable level and ask for your understanding," Cho said. "We implore the people to accept this in an open-hearted way."