Tue, Sep 02, 2008 page11

• South Korea plans to cut income, property taxes

  • BLOOMBERG
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  South Korea will cut income taxes, provide aid to small businesses and remove some property taxes to spur economic growth.

  Income-tax rates will be lowered to between 6 percent and 33 percent by 2010 from the current range of 8 percent to 35 percent, the Ministry of Strategy and Finance said in Gwacheon yesterday. The government will expand tax breaks for parents who spend money on their children’s education and on family medical care, the tax revision proposal said.

  Consumers, struggling with surging living costs and record debt, cut their spending last quarter for the first time in four years. The KOSPI stock index slumped yesterday to the lowest since March last year and the won weakened below 1,100 won to the US dollar for the first time in almost four years on growing evidence of an economic slowdown.

  “We will ease the tax burden on the middle and low income class to try and support” domestic demand, South Korean Finance Minister Kang Man-soo told reporters on Thursday.

  “A lower tax burden will help boost investment by companies and thereby spur economic growth,” Kang said.

  Only homes sold for more than 900 million won (US$816,400) will be liable for a trading tax from Jan. 1, up from 600 million won currently, the ministry also said yesterday.

  South Korean President Lee Myung-bak’s six-month-old government announced in June plans to lower company taxes in an effort to stoke the economy, which is at risk from a global slowdown and the fastest inflation since 1998.

  The government and the ruling party agreed this morning to delay cutting taxes for large businesses for a year to help lower-income people instead.

  The US$970 billion economy grew 4.8 percent in the second quarter from a year earlier, the weakest pace in more than a year. Soaring fuel and food costs sent consumer confidence tumbling in July to the lowest level since 2000.

  Truck drivers staged nationwide protests in July and staff at carmakers stopped work to demand higher pay to make up for the surge in food and fuel costs.

  Voter support for the government halved to 24 percent, from a 52 percent approval rating at the start of Lee’s administration in March, a Chosun Ilbo newspaper poll said last Monday.

  The changes will reduce the tax burden for a four-person household that earns an annual income of 30 million won by as much as 40 percent, the ministry estimated.

  The moves will cost the government about 20.7 trillion won in lost tax revenue from this year to 2012, the ministry said. South Korea has 14.2 trillion won of unused tax revenue from last year.

  The government will provide larger tax incentives for temporary laborers. Buyers won’t have to pay consumption tax on hybrid cars, the ministry said yesterday.

  It will lower inheritance tax rates to between 6 percent and 33 percent by 2010, down from 10 percent to 50 percent now.

  Smaller companies, including restaurants and start-ups in the film and construction industries, will be exempt from paying half their tax for the first four years of operations.

  South Korea will also extend the period during which companies are allowed to delay tax payments when they move factories and headquarters to provincial areas from the city, by three years.

  The government will simplify steps that enable foreigners to receive tax breaks for investing in South Korea, yesterday’s report said. It will also provide greater tax breaks for people that own their homes for more than 10 years.
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