[Integrated Gimpo, Taxes] Gimpo City Local Tax Reduction Inevitable... Distribution Also a Headache

If Incorporated into Gimpo City, Tax Items Will Change
Seoul Autonomous Districts May Receive Less

As the incorporation of Gimpo City into Seoul becomes a major issue, the attention of the political sphere and local residents is focused on it. If Gimpo City is incorporated into Seoul and becomes 'Gimpo-gu,' it will significantly impact the revenue structure and the budgets of existing basic local governments within Seoul. This article analyzes the potential effects of Gimpo City's incorporation into Seoul from a tax perspective.

▲Expected Decrease in Gimpo City's Local Tax Revenue= The total revenue (general account and other special accounts combined) in Gimpo City's 2023 original budget amounts to 1.4758 trillion KRW. According to the Ministry of the Interior and Safety's Local Finance Integrated Disclosure System, Gimpo City's fiscal independence ratio currently stands at 37.16%, ranking 12th among 31 cities and counties in Gyeonggi Province. The fiscal independence ratio is an indicator showing the extent to which a local government can independently finance its fiscal activities, representing the proportion of local taxes and non-tax revenues in total revenue.

In the case of Seoul, the central office records 76.99%, while the 25 autonomous districts average 29.50%. In other words, Gimpo City's fiscal independence ratio is higher than the average of Seoul's autonomous districts.

On the 2nd, a banner welcoming the "Public Discussion on Incorporation of Gimpo City into Seoul" was hung on a road in Gimpo City, Gyeonggi Province. Photo by Yonhap News

Regarding local tax revenue, which accounts for the largest portion of revenue, Gimpo City’s 2023 original budget estimates it at 420.2 billion KRW. In contrast, Nowon-gu, which has a population similar to Gimpo City (approximately 486,000 residents in Gimpo City according to the Ministry of the Interior and Safety’s resident registration population status, and about 500,000 in Nowon-gu), has local tax revenue of only 135.4 billion KRW. Nowon-gu’s total revenue in the 2023 original budget reaches 1.2277 trillion KRW, but local taxes account for only 11.03% of this. Meanwhile, Gimpo City’s local tax ratio is 28.47%.

Several factors can explain this difference, but the most important is that the local tax items differ. Articles 7 and 8 of the Local Tax Basic Act regulate tax items. According to this law, both Gimpo City and Nowon-gu can collect property tax. However, Nowon-gu, as an autonomous district under Seoul Special City, can only additionally collect registration and license tax. On the other hand, Gimpo City, as a city under Gyeonggi Province, cannot collect registration and license tax (which goes to the provincial tax), but can additionally collect tobacco consumption tax, resident tax, local income tax, and automobile tax, which are classified as city taxes in a special city.

In other words, if Gimpo City is incorporated into Seoul, it will have to transfer tobacco consumption tax and resident tax, which it has been collecting, to Seoul, potentially lowering its fiscal independence ratio. Although various variables such as subsidies remain, a decrease in revenue will inevitably have a negative impact on budget allocation for citizens.

▲Possibility of Decreased Subsidies to Seoul Autonomous Districts= One might think that if Gimpo City brings in additional tax items, Seoul might increase subsidies distributed to its autonomous districts. However, a closer look shows this is not necessarily the case.

Seoul announced that its autonomous districts collected 4.0806 trillion KRW in property tax as of September this year. Property tax is most influenced by real estate prices. Accordingly, among Seoul’s autonomous districts’ property tax collections in September this year, Gangnam-gu, with high real estate prices, collected the most at 908.7 billion KRW, followed by Seocho-gu with 486.1 billion KRW and Songpa-gu with 343.5 billion KRW. In contrast, Gimpo City collected 104.7 billion KRW. Compared to Seoul’s autonomous districts, this places Gimpo City roughly 12th in scale, between Seongdong-gu (127.8 billion KRW) and Yangcheon-gu (98.2 billion KRW).

The issue is that Seoul redistributes half of the property tax collected in September, amounting to 1.6782 trillion KRW, equally among its autonomous districts to address fiscal disparities. Seoul is the only city nationwide where joint property tax collection applies. The average property tax for Seoul’s autonomous districts is 163.2 billion KRW, so Gimpo City, which collects less than this average, could receive more in redistribution than it collects. This would inevitably impact existing autonomous districts.

Considering debt, Gimpo City’s fiscal independence ratio could decrease further, and subsidies that would have gone to other autonomous districts might be redirected to Gimpo City. During the 2022 fiscal year settlement review held at the city council this year, Gimpo City reported that "400 billion KRW borrowed during COVID-19 must be repaid starting in 2025." Additionally, 400 billion KRW will be spent on constructing public facilities such as the city hall, parking lots, and swimming pools. Gimpo City also needs to secure 500 billion KRW for railway contributions related to the extension of Seoul Subway Line 5 and Incheon Subway Line 2.

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