Last Year’s Tax Law Amendments Expanded Tax Reductions by 61 Cases... Result of Considering Voter Sentiment Ahead of General Election

[Asia Economy Reporter Kim Eun-byeol] Among the 72 tax expenditure (national tax reduction) items revised in the amended tax law passed by the National Assembly last December, 61 items were revised to expand national tax reductions. Tax expenditure refers to tax support in the form of exemptions, reductions, or tax credits where the government does not collect taxes that it should.

According to the 'Key Contents and Review Issues of the 2020 Amended Tax Law' recently published by the National Assembly Budget Office on the 12th, the amended tax law includes a total of 61 items revised to expand tax expenditures: 35 items for 'tax expenditure expansion and extension,' 18 items for 'simple sunset (expiration date) extension,' and 8 newly established items. The Budget Office explained, "The expansion of tax expenditures includes expanding support for investment, industry, employment, and reducing the tax burden on wage earners."

Representative cases of expanded or extended tax expenditures include the temporary increase and extension of the tax credit rate for investment in productivity improvement facilities, extension of credit card income deduction, and additional deduction for newspaper subscription fees. Newly established items include income tax reductions for the return of outstanding domestic personnel, tax credits for joint investment by domestic corporations in material, parts, and equipment companies, and individual consumption tax reductions for membership golf courses located in Jeju Island and crisis areas.

In particular, among the 34 tax expenditure items that expired last year, more than half?18 items?had their sunset extended. Representative examples include special VAT refunds for foreign tourists and deemed input tax credits for used cars. There were cases where the government’s tax law amendment proposed ending the sunset, but the National Assembly extended it during the review process, including three cases such as VAT exemption for NongHyup’s IT service.

The number of tax expenditure items reduced or abolished due to the tax law amendment was limited to 11. Ten items were reduced, including the lowering of the deemed input tax credit rate for tax-exempt agricultural products for taxable entertainment business operators, and only one case?the abolition of the tax special case for factory relocation in planned development districts such as the administrative city?was abolished.

Tax expenditures should be timely adjusted by reducing the system once the original purpose is achieved, but it is not uncommon for support to continue through sunset extensions due to opposition from stakeholders. A representative example is last year’s attempt by the government to end the sunset of the credit card income deduction, which was ultimately abandoned due to public opposition. Slow adjustment of exemption and reduction systems can lead to continuous increases in national tax reductions, potentially increasing fiscal burdens. In years leading up to general elections, tax expenditure items tend to increase during National Assembly deliberations. Among the 61 items revised to expand tax expenditures last year, 17 were decided during the National Assembly review process.

Examples include the expansion of non-taxation on fishing income (from 30 million to 50 million KRW), expansion of corporate tax reductions for English cooperative corporations, establishment of tax credits for outstanding shipping companies (corporate tax reduction), extension of the application period for electronic commerce tax credits on petroleum products (3 years), and extension of the application period for tax credits on employer-paid social insurance premiums for new subscribers (1 year). All of these were passed as bills proposed by lawmakers.

Only two items were decided to reduce tax expenditures during the National Assembly review this time.

The Budget Office estimated the tax revenue effect (on a collection basis and cumulative method) of this revision of tax expenditure items, analyzing that tax revenue will decrease by 185.2 billion KRW this year and by a total of 1.1709 trillion KRW over five years until 2024.

This content was produced with the assistance of AI translation services.