On August 2, South Korea’s Ministry of Strategy and Finance unveiled plans to raise taxes on businesses and high earners in order to raise funds for increased welfare spending to help tackle rising income inequality. The proposed changes, set to be implemented from the start of 2018, would see income tax on those earning over KRW 500m ($447,000) a year raised from 40 percent to 42 percent. Tax would also increase further down the pay scale, from 38 percent to 40 percent for those earning between KRW 300m ($267,000) and KRW 500m ($445,000).
President Moon Jae-in was elected in May, on an economically left-leaning platform that tapped into growing voter dissatisfaction with rising inequality levels
Proposed increases in business rates would also net the government an extra five percent of corporate tax revenue, with the top marginal rate raised from 22 percent to 25 percent for corporations with over KRW 200bn ($179m) revenue. This bucks the current global trend towards slashing corporation tax, with cuts proposed by the US and some European countries. The new tax structure proposed today by South Korea is still subject to parliamentary approval.
South Korea struggled economically due to constant political turmoil well into the 60s, but has since developed into a bastion of economic growth. However, a rapidly ageing population now threatens the country’s prosperity and the government is struggling to plan for a shrinking workforce and rising healthcare costs in the coming years.
President Moon Jae-in was elected in May, on an economically left-leaning platform that tapped into growing voter dissatisfaction with rising inequality levels. During the campaign, he took aim at corruption in South Korea’s massive business conglomerates, and promised to funnel a KRW 10trn ($8.9bn) fiscal stimulus package into job creation, start-ups and small companies. Today’s announcement of a hike in income tax is in line with another campaign promise, to fund the creation of 810,000 new public sector jobs with money raised through taxing the wealthy.