Hankyung Research Institute "Local Tax Revenue Increased by 62.6% Over the Past 6 Years"

[Asia Economy Reporter Changhwan Lee] A study has revealed that the burden of local tax payments on citizens has significantly increased since the 2014 local tax system reform.

The Korea Economic Research Institute announced on the 23rd that an analysis of the annual local tax assessment status showed that the local tax assessed amount in 2019 increased by 62.6% compared to 2013. In particular, acquisition tax (77.8%) and corporate local income tax (85.8%) showed remarkable increases.

Last year, the local tax assessed amount was 94.8 trillion KRW, a 62.6% increase compared to 58 trillion KRW in 2013. During the same period, GNI (Gross National Income) increased by 28.2%, and national tax collection increased by 45.4%, indicating that the local tax burden grew 2.2 times faster than GNI and 1.3 times faster than national tax collection. As a result, the local tax assessed amount per household, which was 2.84 million KRW in 2013, rose to 4.21 million KRW last year, a 1.5-fold increase.

While the local tax assessed amount increased, the amount of local tax deductions and exemptions decreased by 13.7% (2.2 trillion KRW), from 16.1 trillion KRW in 2013 to 13.9 trillion KRW in 2019.

A representative from KERI explained, “This is because most of the local tax deduction and exemption systems, which were scheduled to sunset and amounted to about 3 trillion KRW, were terminated (about 2.1 trillion KRW) during the 2014 local tax reform.”

As part of the rent and lease policy in August 2013, the government permanently lowered the housing acquisition tax rate to reduce the tax burden on citizens and to stabilize the supply and demand of rent and lease through revitalizing housing transactions.

However, concerned about the deterioration of local finances due to the decrease in acquisition tax revenue, the government implemented local tax system reforms in 2014, including gradually raising the local consumption tax rate and making the local income tax independent. Despite the reduction in the housing acquisition tax rate, the housing acquisition tax assessed amount increased by 119.5% (2.2 times), from 3.5 trillion KRW in 2013 to 7.7 trillion KRW in 2019.

The total acquisition tax assessed amount increased by 77.8%, from 13.5 trillion KRW in 2013 to 24 trillion KRW in 2019. This increase is higher than the overall local tax assessed amount growth rate (62.6%) during the same period.

A KERI official stated, “Although it was initially expected that local government finances would deteriorate due to the reduction in the housing acquisition tax rate, in reality, acquisition tax assessed amounts steadily increased due to the revitalization of housing transactions and the rise in asset prices.” He added, “In particular, the acquisition tax assessed amount for houses with a taxable value exceeding 900 million KRW increased 5.6 times compared to 2013.”

Choo Kwang-ho, Director of Economic Policy at KERI, emphasized, “Although the local tax system reform, including the independence of local income tax, was promoted out of concern that local finances would worsen due to the initial reduction in acquisition tax rates, the overall local tax revenue, including acquisition tax revenue, has shown a sharp upward trend since then. There is a need to adjust the pace of tax burden relief for citizens.”

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