[Exclusive] Income Tax Imposed on Buyeong Childbirth Support Fund... Ministry of Economy and Finance to Announce Tax Reduction Plan on May 5

The Ministry of Economy and Finance has decided to consider the childbirth support funds paid by Booyoung Group as earned income and impose earned income tax instead of gift tax. However, it has also decided to significantly reduce the tax burden on workers who received the childbirth support funds. The Ministry of Economy and Finance plans to announce next week tax incentive measures applicable to corporations that paid childbirth encouragement funds and the workers who received them.

According to related ministries on the 29th, the Ministry of Economy and Finance will announce around the 5th of next month tax benefits for companies that encouraged childbirth and the workers who received such support, using the case of Booyoung’s childbirth support fund payment as an opportunity. The core of the plan is to consider childbirth support funds paid to all employees under the same criteria as earned income rather than gifts, and to reduce the tax burden on both companies and workers (recipients of the support funds).

The Ministry of Economy and Finance is reported to revise the Income Tax Act to raise the non-taxable limit of 200,000 KRW per month for childbirth and childcare allowances and apply a lower tax rate to childbirth support funds exceeding this amount. Along with this, they are also finalizing a 'split taxation' plan to tax lump-sum childbirth support funds, such as Booyoung’s 100 million KRW support, over several years. This has the effect of lowering the taxable base and reducing taxes.

Lee Joong-geun, chairman of Booyoung Group, is taking a commemorative photo after presenting childbirth incentives to families with multiple children at the New Year's ceremony held at the Booyoung Building in Jung-gu, Seoul, on the morning of the 5th. Chairman Lee announced that to address the serious low birthrate issue, a childbirth incentive policy will be implemented, providing 100 million KRW in cash per child for 70 employees' children born since 2021. The total support amount is 7 billion KRW. [Photo by Yonhap News]

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The Ministry of Economy and Finance has completed its final opinion gathering to interpret the case of Booyoung paying support funds to employees’ children as ‘earned income’ rather than ‘gifts.’ A senior official from the Ministry explained, “If we start to leave the interpretation of gifts open, considerable side effects could occur under tax law.” Under tax law, gifts should only apply when material is transferred free of charge, and if exceptions allowing interpretation as gifts are opened, various demands for tax reductions using corporations could increase excessively.

In Booyoung’s case, while interpreting childbirth support funds as gifts, there was also a demand that the corporation should be allowed to recognize them as deductible expenses. The concern was that if childbirth support funds are interpreted as gifts while simultaneously recognizing deductible expenses for the corporation reflecting social contributions to childbirth, demands for applying tax benefits could surge in the future. For example, there is concern about situations where a company chairman gives a generous childbirth support fund to his own child, interprets it as a gift, but processes it as a deductible expense.

However, there is criticism that such incentive plans might concentrate benefits only on companies and workers capable of providing generous support like Booyoung. Nevertheless, the government’s position is that the low birthrate situation is a critical national issue and thus unavoidable. Another official from the Ministry of Economy and Finance said, “The government is preparing various policy packages related to low birthrate beyond just tax measures,” adding, “Since it is not possible to address all low birthrate policies within the tax system, separate policies need to be prepared for companies that find it difficult to provide support funds.”

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