[2020 Tax Law] Income Tax Top Rate Raised to 45%... Highest in 26 Years

Tax System Development Deliberation Committee Approves 2020 Tax Law Amendment Proposal

[Sejong=Asia Economy Reporter Kim Hyunjung] The government is raising the top income tax rate to 45%, the highest in 26 years. With this adjustment, South Korea becomes the seventh country among OECD member states with the highest top income tax rate.

On the 22nd, the Ministry of Economy and Finance held the Tax System Development Deliberation Committee at the Bankers' Hall in Seoul and reviewed and approved the "2020 Tax Law Amendment Proposal" containing this content. In this amendment, the government established a new tax base bracket exceeding 1 billion KRW and raised the current top tax rate from 42% to 45%, an increase of 3 percentage points. The increased rate will apply to income earned from January 1 of next year. The 45% rate is the highest level in 26 years since 1995 (45%).

Accordingly, among the current seven tax base brackets?up to 12 million KRW (6%), 12 million to 46 million KRW (15%), 46 million to 88 million KRW (24%), 88 million to 150 million KRW (35%), 150 million to 300 million KRW (38%), 300 million to 500 million KRW (40%), and over 500 million KRW (42%)?the over 500 million KRW bracket is split into 500 million to 1 billion KRW (42%) and over 1 billion KRW (45%), creating eight brackets. The government estimates that with this amendment applied to the 2018 tax year, a total of 16,000 people will be subject to the top tax rate, resulting in an additional 900 billion KRW in income tax revenue compared to the previous year. Excluding capital gains tax, the number of taxpayers subject to wage and comprehensive income tax is about 11,000 (top 0.05%). Assuming a taxpayer with a tax base of 3 billion KRW, this tax law amendment will increase their income tax payment from 1,224.6 million KRW to 1,284.6 million KRW, an increase of 60 million KRW.

Hong Nam-ki, Deputy Prime Minister for Economic Affairs, is delivering opening remarks at the '2020 Tax Law Amendment Party-Government Consultation' held at the National Assembly on the 22nd. Photo by Yoon Dong-joo doso7@

Regarding this, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, explained at a pre-briefing held at the Government Complex Sejong on the 20th, "Due to the novel coronavirus disease (COVID-19), self-employed individuals, small and medium-sized enterprises, and low-income groups are facing particularly greater difficulties," adding, "Looking at the income distribution indicators for the first quarter of this year, labor income in the first quintile has decreased, and the fifth quintile ratio has increased, showing a worsening trend." Hong further stated, "After much consideration, we intend to strengthen social solidarity and the income redistribution function by raising the income tax rate for ultra-high-income earners who have relatively more capacity."

This government decision effectively accepts the so-called "Solidarity Surcharge" proposed by the International Monetary Fund (IMF) in April. The IMF suggested in a report that, given the expected 3% contraction in global economic growth this year due to COVID-19, increasing taxes on income, real estate, and wealth could be a way to establish an economic protection fund.

However, the government views that even with the top tax rate increase, South Korea's rate is similar to countries with comparable economic sizes. The so-called "30-50 club" countries, with a per capita income of 30,000 USD and a population over 50 million, include seven countries including South Korea (Japan, the United States, the United Kingdom, Germany, France, Italy, etc.). Except for the United States (37%) and Italy (43%), the top income tax rates in the other countries are set at 45%. When ranking OECD member countries by top income tax rates, Austria (55%), the Netherlands (51.8%), Belgium (50%), Israel (50%), Slovenia (50%), and Portugal (48%) lead, followed by seven countries including South Korea (Japan, France, Greece, Germany, Australia, the United Kingdom) tied for seventh place, rising seven steps from the current 42% (14th place).

Meanwhile, the Moon Jae-in administration last raised the top income tax rate in its first tax reform in 2017, increasing it by 2 percentage points from 40% to 42%. Including this adjustment, the Moon administration has raised the top income tax rate twice, totaling a 5 percentage point increase.

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