[The Editors' Verdict] National Tax Arrears Reach 110 Trillion Won... How to Ease the Burden on Salary Earners

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Every February, office workers experience mixed feelings. Some receive year-end tax refunds as a so-called "13th month bonus," while others are caught off guard by unexpected additional tax payments, feeling as though their hard-earned money is being taken away. Beyond these personal emotions, the numbers present an even starker reality. Last year, earned income tax revenue amounted to approximately 68.4 trillion won, more than double the figure from ten years ago, and its share of total national tax revenue rose from the 12% range to the 18% range. Unlike corporate tax, which fluctuates depending on business performance, earned income tax is withheld from salaries without fail, making it the government's most reliable "cash cow" source of revenue.

The core principle of taxation is "a broad tax base and low tax rates." However, the reality in Korea is far from this ideal. One out of three workers (33%) pays no tax at all, while the top 12% of high-income earners shoulder 76% of all income taxes. On top of that, even though real wages have stagnated due to rising prices, the progressive tax structure has led only to higher tax burdens, turning diligent taxpayers into "easy targets." This is why complaints that "the government squeezes only the most accessible workers" have reached a breaking point.

There are also issues with fairness in tax collection. National tax arrears exceeded 100 trillion won in 2022, reaching 102.5 trillion won, and increased further to 110.7 trillion won in 2024. As of 2024, the total amount of newly incurred and carried-over arrears stands at 41.9603 trillion won, but only 20.94 trillion won was collected, which is just about half. The same pattern is observed with police-issued fines for violations such as speeding, illegal parking, signal violations, and misuse of exclusive lanes. In 2024, such fines totaled 2.046482 trillion won, with a collection rate of only 54.8%, leaving 1.083736 trillion won uncollected. Allowing arrears to persist sends two negative signals to society: one is the misguided incentive that "you can get away with it if you hold out," and the other is the cynical message that "those who pay honestly are at a disadvantage." Tax justice is realized not through tax rates but through enforcement. This is why National Tax Service Commissioner Lim Gwanghyeon stated, "There is no royal road to clearing arrears."

To address this unfairness, the National Tax Service and the police have declared war by launching "arrears management task forces." The National Tax Service's "National Tax Arrears Management Task Force" plans to deploy a workforce of 2,000 over the next three years to conduct thorough investigations on nearly all of the 1.33 million delinquent taxpayers. The police also plan to select a total of 100 arrears management officers in the first half of this year across 18 metropolitan and provincial police agencies and 60 police stations, including the Seoul Metropolitan Police Agency. Both organizations need to show the same tenacity as the Seoul Metropolitan Government's "38 Tax Collection Division," which is known for doggedly pursuing delinquent taxes to the end.

The war on arrears is only the beginning; fundamental institutional reforms must follow. While the main topic in the first half of the year is arrears collection, the second half must focus on "tax equity." First, the government should reduce tax expenditures-which are expected to exceed 80 trillion won this year-and rationally adjust the effective tax rate. The low tax burden ratio must also be normalized. Korea's tax-to-GDP ratio is projected to be 17.6% in 2024 (and 18.5% in 2025), ranking 35th out of 38 OECD countries, among the lowest. The gap with the OECD average (about 25%) exceeds 7 percentage points.

Reform of the earned income tax is also necessary. On February 18 of last year, President Lee Jaemyung, then leader of the Democratic Party of Korea, posted on Facebook under the title "Are salaried workers just easy targets?" He wrote, "While tax cuts are granted to the ultra-wealthy, in reality, tax increases have been imposed on salaried workers. Isn't this something that needs to be fixed?" Although the political community seemed to respond, the issue remains unresolved. President Lee is unlikely to have forgotten, but given the political difficulty of addressing taxes ahead of the local elections, there is hope that public debate will pick up in the second half of the year after the elections.

Lee Kyungho, Economics Editor

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