[In-Depth Review] Active Tax Support Needed to Promote Marriage

Dr. Im Dong-won, Korea Economic Research Institute

Dr. Lim Dong-won (Korea Economic Research Institute)

Statistics Korea announced that the number of marriages in 2021 fell below 200,000 for the first time ever, totaling 192,509, and the marriage rate per 1,000 people has continuously declined from 6.6 in 2011 to 4.2 in 2020. The continuous decline in the marriage rate can be seen as the starting point and a major cause of the low birthrate phenomenon. If the marriage rate continues to fall and leads to a low birthrate, serious problems will arise such as slowed economic growth due to negative demographic changes, increased fiscal burdens, and intensified intergenerational inequality.

Comprehensive measures to encourage marriage are necessary, and tax policy should also promote and induce marriage. However, South Korea currently lacks special tax support for marriage, and there are no proactive tax supports like Japan’s gift tax exemption on marriage expenses. The marriage income deduction of 1 million KRW for wage earners earning less than 25 million KRW, which was applied until 2008, has been abolished, and the marriage tax credit introduced in 2016 was deferred by the National Assembly.

In Japan, when parents gift marriage expenses such as wedding costs, moving expenses, and rental deposits to their children, a temporary gift tax exemption of up to 3 million yen (approximately 30 million KRW) is applied. Until March 2023, if a direct ascendant entered into a marriage fund management contract for a child aged 20 to under 50 to cover marriage expenses, up to 3 million yen of the trust beneficiary rights or monetary value is exempt from gift tax. This period has been continuously extended as an active measure.

In Germany, tax support for marriage is provided through the “splitting method,” where spouses’ incomes are combined and then evenly split, and the tax rate for each bracket is applied to calculate the tax amount. For example, in a single-earner household with an annual income of 50 million KRW, applying the current individual taxation results in a tax of 6.78 million KRW, but applying the splitting method reduces it to 5.34 million KRW, saving 1.44 million KRW.

Unless tax support policies are more proactive than in the past, they will have little effect in encouraging marriage, so new and active tax support that can reduce the burden of marriage is needed.

First, since many expenses such as wedding hall fees and wedding gifts are incurred at the time of marriage, it is necessary to reduce the cost burden through tax support measures for marriage. Introducing and applying a tax credit of 1 million KRW per person for wage earners with total annual income under 80 million KRW at the time of marriage would be effective.

The previously applied income deduction method for marriage has been criticized for favoring high-income earners, so considering tax fairness, a tax credit method may be preferable. Next, like Japan, a special gift tax exemption for marriage expenses should be introduced to reduce the burden of marriage costs.

However, to prevent excessive spending on marriage, the limit should be set at 30 million KRW, and it should be applied separately from the general gift tax exemption limit. The special gift tax exemption would also be meaningful in facilitating the smooth transfer of assets held by the elderly to the next generation.

Finally, since South Korea’s income tax unit is individual taxation without consideration for marriage, an optional splitting method should be introduced to allow couples to choose the more advantageous taxation method. Although active tax support for marriage may reduce tax revenue, if it is a measure to overcome the global decline in marriage rates, the benefits will outweigh the losses.

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