Jongseok An. Korea Institute of Public Finance

Transcription

1 Jongseok An Korea Institute of Public Finance

2 Policy Issues in Labour Income Tax Effective Tax Burden Int l Comparison Effective Tax Rate by Income Class Effects of Tax Allowances on ETR 2

3 Need more tax revenue Need more revenue for welfare expenditures Fiscaldeficiencyin terms of total tax burdenis expected to be largerthan10 percentof GDP in 2035 The government has plans to reform welfare system and the plans seem to require more expenditures PIT is an important source of tax revenue About 30% of national tax revenue 4.4% of GDP about a half of OECD average 3

4 Tax revenue of major tax items(2016) Total Tax revenue National Tax Tax Revenue (billion won) % of Total Tax Revenue 233, Personal Income Tax 70, (Labor Income Tax) (31,974) (13.7) Corporate Tax 52, Value Added Tax 61,

5 Tax revenue of PIT 5

6 Tax revenue of PIT OECD countries (2014) 6

7 Gini Coefficient of Market Income in OECD Countries(2013) 7

8 Gini Coefficient of Disposable Income in OECD Countries(2013) 8

9 Trends of Gini Coefficient in Korea (Sung, 2015) Market income Disposable Income Private Income After-tax Income Total Income Final Income 9

10 In the past, tax policy in Korea emphasized efficiency than income redistribution Kept the tax burden ratio relatively low Heavily depended on consumption taxes rather than income taxes Recent changes in tax policy and administration for income redistribution Broadened income tax base owing to the real-name financial system Improvement in tax administration using ICT Introduction of EITC and CTC Changes from income deduction to tax credits 10

11 % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% PIT CT SSC Gen. Con. Specific Con. Property Other 11

12 In Korean society, preference for income redistribution is very strong Compared with other countries, the degree of income inequality in Korea is relatively low Gini coefficient for market income : in 2013, the lowest in OECD countries The income redistribution function of tax and fiscal expenditures is very weak Gini coefficient of disposable income: 0.302, 17 th in OECD countries Income inequality has recently been expanded The new government also shows strong support for income redistribution As for tax policy, plans to increase top rates of corporation tax and personal income tax have been proposed 12

13 Taxpayers who do not owe taxes Labor income tax: 48.1% in 2014 Comprehensive income tax: 23.1% Labor Income Tax Comprehensive Income Tax 13

14 Need more revenue from labor income tax Income redistribution through income tax Let more people to pay positive amount of personal income tax 14

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17 ETR of Korea is very low for all rage of income Tax allowance for a spouse is relatively small in Korea than in other countries Tax progressivity is low, especially in low income classes 17

18 Data: NaSTaB of KIPF Data Panel survey on tax and benefit Problem of the data: under-sampled in the lowest income class and the highest income classes a general problem of survey data Whoare exemptedfrompitamongwage earners Single,wageincomelessthan14millionwon(35%oftheaveragewage) Headof4-personfamily,single-earner,30millionwon(75%of theaveragewage) Theaveragewage40millionwon TheETRgap is large,evenif incomelevelsare thesame TheETRforthosewithincomearound150%oftheaveragewage:0-7% CausesofETRgap:numberofdependents2-4%p,othertaxallowances2-4%p 18

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20 Total Wage Income % of average wage Share in the number of taxpayers NaSTaB NTS ETR for those with the threshold income Total Sample Single Family of 4 20 million million million million million Over 10 About 10 <100 million Over Over 12 Over

21 Those who do not owe positive amount of PIT Single, those with income less than 14 million won (35% of the average wage) A head of 4-person family, single-earner, those with income 30 million won (75% of the average wage) or less The average wage 40 million won The ETR gap among individuals with the same level of income is large The ETR for those with income around 150% of the average wage: ranges from 0 to 7% Causes of the ETR gap : number of dependents 2-4%p, other tax allowances 2-4%p 21

22 population total income after tax income 22

23 Deduction for wage income Income range (10 thousand won) From To Marginal deduction rate for income over the threshold (%) , ,500 4, ,500 10, ,000 2 Income deduction for expenditure paid by credit/debit card Tax credit for education expenditure: 15% of education expenditure Tax credit for insurancepremium : 12% of insurancepremium (upto 1 million won per year) 23

24 Impose a deduction limit 5 million won (1) 24

25 Impose a deduction limit 5 million won (2) 25

26 Income (% of average wage) Number of taxpayers Share of taxpayers (%) ETR (average, current) changes in ETR compared to the current rule(%p) Upper limit 5 Upper limit 10 No DWI million million Over Total 1, Gini (change in Gini, %) (change in tax revenue, %)

27 Income (% of average wage) Number of taxpayers Share of taxpayers (%) ETR (average, current) Effects of Special Tax Allowances Credit card Education Insurance Over Total 1, Gini (change in Gini, %) (change in tax revenue, %)

28 The threshold income is more important than the number of wage earners who do not owe taxes We need to determine the threshold income that determines whether an person owe taxes or not Considerminimumcostof living or a percentageof average wage Should consider number of dependents Minimize the number of taxpayers with income over the threshold Need to adjust deduction for wage income, special tax allowances, etc 28

29 Deduction for wage income The most important measure for reducing wage earners who do not owe taxes, strengthening the income redistribution function, and raising more tax revenue We considered three cases: (a) abolishing the deduction, (b) setting an upper limit of 5 million won or (c)10 million won Revenueeffect: (a) >(b) >(c), Income redistribution: (b) > (a) >(c) Reducing wageearnerswho do not owe taxes: (a) > (b) > (c) Under (b), most of wage earners with income over 70% of average income are expected to owe positive amount of taxes 29

30 Special tax allowances Tax credit for education expenditures has negative effect on income redistribution Students in low income families receive government support for their education Changes in tax rates A change in top rate has limited effects on income redistribution and tax revenue A widespread tax rate increase applied to the middle income class or higher is better Need a comprehensive reform plan considering the effective tax rates of all income classes 30

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