'Good Landlord' Tax Credit Increased from 50% to 70%... Concerns Over Regressivity Also Raised

Discussion on Easing Emergency Loan Requirements for Small Business Owners

[Asia Economy Reporter Jang Sehee] As the novel coronavirus infection (COVID-19) worsens, a plan to expand the tax credit benefit for benevolent landlords to 70% is being seriously considered.

On the 27th, according to the ruling party and government, they are discussing raising the tax credit level for benevolent landlords from the current 50% to 70%. The aim is to increase the tax credit rate to encourage more landlords to participate in rent reductions.

While the ruling party and government are said to have compromised on a tax credit level of about 70%, considering tax revenue reduction and the effectiveness of the system, concerns about regressivity have also emerged. Increasing the tax credit rate means that higher-income landlords receive more benefits.

For example, if landlord A receives a rent of 4 million won, applying an average income tax rate of 40% means the income tax payable on that rent is 1.6 million won.

If A reduces the rent by half to 2 million won, applying the average income tax rate of 40% results in a tax of 800,000 won. However, applying the current 50% (1 million won) tax credit on the reduction amount of 2 million won means A actually receives a refund of 200,000 won. Compared to the tax (1.6 million won) when the rent was not reduced, this results in a tax saving effect of 1.8 million won.

But if the tax credit is expanded to 70%, A would receive a 70% (1.4 million won) tax credit and get a refund of 600,000 won. This means reducing taxes by 2.2 million won compared to the tax (1.6 million won) when the rent was not reduced.

In other words, by reducing the rent by 2 million won, A receives a tax benefit of 2.2 million won and a refund of 200,000 won.

For low-income landlords, since their income tax rate is lower than 40%, even if the tax credit rate increases, the possibility of a refund decreases, but for high-income landlords, the likelihood of receiving a refund increases.

Meanwhile, the government is also exploring measures such as relaxing the requirements for emergency loans for small business owners or increasing the loan amounts.

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