Sang-ui: "The 'Burden Charge System' Must Be Fully Reexamined"

Imposition of Taxes and Other Charges for Public Projects
Excessive Burden Hindering Private Economic Activities

Seoul Jung-gu Korea Chamber of Commerce and Industry. Photo by Jinhyung Kang aymsdream@

The business community has called for improvements to the statutory charge system. Statutory charges refer to monetary payment obligations imposed on citizens and companies outside of taxes in relation to specific public interest projects.

The Korea Chamber of Commerce and Industry (KCCI) stated on the 22nd, through a report titled "Problems and Improvement Measures of the Statutory Charge System" analyzed by experts, that "Statutory charges are imposed for reasons such as promoting public interest projects and achieving policy goals, but there is a growing negative perception that they impose excessive burdens on citizens and companies, hindering private economic activities." They added, "It is necessary to reform the system by abolishing charges that have lost their validity due to economic and social changes and adjusting excessively high rates."

Statutory charges were first introduced in 1961 and increased significantly during the economic development period of the 1980s, currently totaling around 90 types. Since 2002, the Basic Act on Statutory Charge Management has been implemented to curb indiscriminate establishment and increase of charges and to operate a management system that enhances transparency in imposition and collection.

However, unlike taxes, statutory charges face less resistance to payment and less parliamentary control. They are managed through funds or special accounts instead of general accounts, making it easier for government ministries to secure project expenses. As a result, the government has been passive in improving the system, and excessive burdens on citizens and companies continue.

In fact, the scale of statutory charges has steadily increased from 7.4 trillion won in 2002 to 22.4 trillion won in 2022, more than tripling. The management system requires a rationality evaluation of each charge every three years, with charges deemed irrational to be abolished. However, abolished charges are minimal, and 67 charges have been maintained for over 20 years, accounting for 74% of all charges.

Accordingly, KCCI pointed out the limitations of the current statutory charge management system in controlling charges and proposed the 'Three Major Evaluation Criteria for Charges': ▲Validity of purpose, ▲Appropriateness of imposition, and ▲Suitability of use, urging improvements for charges that do not meet these criteria.

Validity of Purpose: Criteria to judge whether the charge aligns with the concept and purpose under the Basic Act on Statutory Charge Management

First, 'Validity of Purpose' is the criterion to determine whether a charge aligns with the concept and purpose defined in the Basic Act on Statutory Charge Management. Charges that weaken the polluter-pays and beneficiary-pays principles, are imposed on the general public rather than specific stakeholders, and lack policy inducement functions?so-called fiscal charges?should be boldly abolished or converted into taxes.

KCCI cited representative charges lacking validity of purpose, including ▲movie theater admission charges, ▲international exchange contributions, ▲departure charges (Ministry of Foreign Affairs, Ministry of Culture, Sports and Tourism), ▲mineral import and sales charges, and ▲reconstruction charges.

The movie theater admission charge collects 3% of the ticket price from citizens entering theaters. It is imposed on the general public rather than specific stakeholders benefiting from movies and lacks any function to induce movie-related activities. Instead, it is only used to finance movie promotion projects, making it difficult to justify its purpose.

The departure charges imposed by the Ministry of Foreign Affairs for the International Disease Control Fund and by the Ministry of Culture, Sports and Tourism for the Tourism Promotion Development Fund are also problematic because they are imposed on all citizens departing through airports and ports, not on the specific actors causing diseases or tourism.

Appropriateness of Imposition: Criteria to judge whether the conditions and rates of charge imposition are properly designed

Second, 'Appropriateness of Imposition' is the criterion to determine whether the conditions and rates for imposing charges are appropriately designed. Since charges impose financial burdens on citizens, they must have clear legal grounds. However, many individual charges delegate imposition conditions and rates to administrative rules or ordinances with weak legal basis.

KCCI categorized problematic cases of appropriateness of imposition into two types. First, charges with unclear legal grounds, such as ▲Credit Guarantee Fund contributions, ▲Water usage charges by river basin from the Ministry of Environment, ▲congestion tolls, and ▲groundwater usage charges. These charges set imposition conditions and rates through enforcement rules, notifications, or local government ordinances.

Second, charges with rates set excessively high relative to the ability to pay or the causative act, including ▲traffic inducement charges, ▲congestion tolls, and ▲reconstruction charges. The traffic inducement charge is imposed on facilities with a total floor area of 1,000㎡ or more within urban traffic management areas. It is calculated by multiplying the floor area by a unit charge and a traffic inducement coefficient. The unit charge has been steadily increasing from a maximum of 400 won per ㎡ in 2014 to 1,000 won in 2020, and local ordinances allow raising it up to 100%. Seoul currently applies a maximum of 2,000 won. The basis for these continuous increases is unclear, and regional standards vary, causing significant burdens.

Suitability of Use: Criteria to judge whether the collected charges are used for projects aligned with their original collection purposes

Third, 'Suitability of Use' is the criterion to determine whether collected charges are used for projects consistent with their original purposes. Using charges for purposes unrelated to their collection contradicts the concept of charges imposed on specific stakeholders closely related to particular acts. Especially, collecting more than necessary and accumulating surplus funds for unplanned projects or other uses conflicts with the polluter-pays and beneficiary-pays principles and the policy inducement function of charges to promote desirable behavior.

KCCI pointed out charges lacking suitability of use, including ▲Electric Power Industry Infrastructure Fund charges, ▲National Health Promotion charges, ▲Casino operator payments, ▲Groundwater usage charges, and ▲International exchange contributions.

The Electric Power Industry Infrastructure Fund charge has been set at 3.7% of electricity bills since 2006. As electricity rates rise, the amount collected also increases, greatly exceeding project expenses. The surplus funds, excluding project and operating costs, increased dramatically from 255.2 billion won in 2009 to 3.777 trillion won as of 2021. These surplus funds are deposited into the Public Fund Management Fund, which integrates surplus funds from various government funds.

Lee Su-won, head of the Corporate Policy Team at KCCI, said, "Statutory charges impose financial burdens on citizens similar to taxes, but they are imposed and collected without strict controls like the principle of legality in tax law, raising ongoing legitimacy issues." He added, "In a low-growth structure with economic growth below 2%, the statutory charge system must be comprehensively reviewed to prevent hindering private economic activities."

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