Mounting public anger over tax revisions, which caused many workers to pay more in their annual tax settlements, prompted the ruling party and the government to amend them again and apply changes retroactively.
In a hurriedly arranged meeting Wednesday, senior officials from the ruling Saenuri Party and the Finance Ministry agreed to increase tax credits for families with children and people preparing for retirement. Saenuri leader Kim Moo-sung emphasized the need to redress the tax codes.
The main opposition New Politics Alliance for Democracy has also vowed to revise the tax scheme to ease the burden on wage earners and increase levies on big businesses.
Finance Ministry officials should certainly be criticized for botching the tax code revisions in 2013. They said the new system was designed to collect less tax throughout the year and return less in rebates at the start of the next one. They also stressed that all extra tax would be collected from higher-income groups and that middle- and lower-income families would shoulder little or no additional burden. But their inaccurate and clumsy readjustment of tax deduction categories, coupled with lowering overall tax credit rates, resulted in many households that spent much on nurturing and educating their children and were saving money for retirement having to pay additional taxes.
Still, the political parties are also in no position to denounce government officials for having caused the outrage among taxpayers, given that lawmakers approved the amended tax scheme by a 245-6 vote about a year ago.
What is needed now is to go beyond just stitching up problems that enraged wage earners to seek ways to enhance the fairness of the overall taxation system and strike a balance between welfare benefits and the tax burden.
The Finance Ministry said Tuesday the government collected 49 trillion won ($45.1 billion) in income tax during the first 11 months of last year, up 4.8 trillion won from a year earlier, while corporate tax revenues decreased by 1.5 trillion won to 40.4 trillion won over the cited period. To redress this imbalance, corporate tax rates may need to be raised. In particular, it seems necessary to impose a levy on the huge cash reserves some big corporations are hoarding without expanding investment or paying their employees more.
More fundamentally, a thorough review should be made on whether it would be possible to maintain expanded welfare programs without hiking tax rates. Critics note the current tax scheme was designed to increase revenues to help cover welfare expenditures without tax increases.
Tax revenues have fallen short of their targets for four consecutive years amid the prolonged economic downturn. In these circumstances, welfare programs need to be readjusted. Alternatively, government officials and politicians should put forward fundamental solutions to make them viable.
