The changes in taxation rules are expected to add around 5 trillion won ($4.2 billion) worth tax income for the South Korean government over the next five years, suggesting authorities have resorted to so-called rich tax levy to cover for the widening fiscal deficit.

According to a National Assembly report obtained exclusively by Maeil Business Newspaper, high income earners subject to the government’s income tax hikes will have to pay additional taxes of 964.5 billion won per year on average over the next five years under new tax code.

The government announced last week that it will create a top-tier income category for those earning of more than 1 billion won to apply a maximum income tax rate of 45 percent. Currently, the top rate is 42 percent applied to a tax base of above 500 million won.

The report found that there are 16,000 taxpayers who will be subject to the newly created maximum tax rate according to the tax report in 2018. That’s about 0.07 percent of taxpayers who report their income tax returns, with 8,000 filing for general income tax, 900 for earned-income tax and 7,000 for transfer income tax.

The growth in capital gains tax is expected to account for more than half of the overall projected tax revenue gains, implying that the tax hike could serve as another form of real estate regulations. According to the National Assembly analysis, transfer income tax is projected to expand by 2.75 trillion won over the next five years, with the gain in earned income tax estimated at 159.1 billion won and general income tax at 1.9 trillion won.

Observers believe that the revision is aimed at increasing tax revenue at the expenses of the affluent people when the government is in urgent need to collect more taxes as its fiscal deficit hit a record high due to its lavish spending to fight COVID-19.

This year’s fiscal deficit is expected to exceed 100 trillion won for the first time in history to 111.5 trillion won. The debt-to-GDP ratio has reached 43.5 percent, up 3.7 percentage points from the pre-supplementary budget target of 39.8 percent

By Lee Hee-soo and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]