Ruling Party and Government to Raise Local Consumption Tax Rate by 4.3 Percentage Points... Establish 1 Trillion Won Local Extinction Response Fund

Yoon Ho-jung, the floor leader of the Democratic Party of Korea, is delivering a opening remark at the 'Special Committee on Fiscal Decentralization Party, Government, and Blue House Full Meeting' held at the National Assembly Members' Office Building on the 28th. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Jeon Jin-young] The Democratic Party of Korea and the government have decided to raise the local consumption tax rate by 4.3 percentage points after discussions on the ‘second phase of fiscal decentralization’ and agreed to establish a 1 trillion won Local Extinction Response Fund to be transferred to local governments.

Kim Young-bae, a member of the Democratic Party’s Special Committee on Fiscal Decentralization, told reporters on the 28th after the party-government consultation, “The special committee held more than 10 meetings with the Ministry of Strategy and Finance, the Ministry of the Interior and Safety, and the Autonomy Decentralization Committee regarding the second phase of fiscal decentralization, and today agreed on a legislative proposal to finalize the second phase of fiscal decentralization under the Moon Jae-in administration.”

The party and government had previously expanded the local consumption tax rate, which is the proportion of value-added tax revenue allocated to local governments, from 7% to 21% through the ‘first phase of fiscal decentralization.’ In this phase, an increase of up to 7 percentage points was discussed, but the increase was narrowed down to 4.8 percentage points. If increased, the ratio of national tax to local tax will be 72.6 to 27.4.

The party and government agreed on a plan to allocate 2.8 trillion won in funds required for transferring some functions from the central government to local governments and to additionally send 1 trillion won as autonomous revenue. They also agreed to separately establish a ‘Local Extinction Response Fund’ and transfer 1 trillion won to local governments.

Regarding the failure to uphold the Moon Jae-in administration’s pledge of a ‘7 to 3’ ratio between national and local taxes, Representative Kim explained, “Considering the national crisis caused by COVID-19 and the increase in central government debt during the crisis recovery process, basic local governments accepted this but face difficulties, so it will be discussed in the third phase of decentralization.”

Floor Leader Yoon Ho-jung said in his opening remarks that day, “The second phase of decentralization should raise the local consumption tax rate to reflect reality and secure autonomous revenue. Especially, since local areas facing population extinction due to low birth rates and aging, as well as underdeveloped regions, require urgent response, the party, government, and Blue House must work closely together.”

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