South Korea to Scrap Excise Taxes on 24 Goods and Lower Income Tax Rates

Strategic Insights -

The government of South Korea announced plans to scrap excise taxes on 24 goods and lower income tax rates in a bid to bolster economic growth. The Ministry of Finance and Economy agreed with the Uri Party to forward a bill that calls for removal of special excise taxes on items such as projection and plasma display panel TVs, air conditioners, golf clubs, motorboats, and jewelry. The tax cut proposal, expected to be made into law during the National Assembly session, will also apply to furs, expensive watches, rugs, and furniture, as well as some medicinal and health products.

The measures will combine for around 410 billion won (US$35 million) in tax breaks on a yearly basis. Key highlights of the plan include:

Key Takeaways:

  • The government will scrap excise taxes on 24 goods, including projection and plasma display panel TVs, air conditioners, golf clubs, motorboats, and jewelry.
  • The tax cut proposal will also apply to furs, expensive watches, rugs, and furniture, as well as some medicinal and health products.
  • The measures will result in a combined 410 billion won (US$35 million) in tax breaks on a yearly basis.
  • Income tax rates for salaried employees and owners of small businesses will be lowered by 1 percentage point.
  • Taxes on interest and dividends will be cut by 1 percentage point to 14% and 9%, respectively.
  • Bigger conglomerates will pay less starting in 2005 when their minimum corporate tax rate is cut from 15% to 13%.
  • Small- and medium-sized enterprises (SMEs) will benefit from increased tax deductions, with those in and around Seoul eligible for a 20% tax break and those outside the region for a 30% tax break.
  • Tax breaks for wholesale and retail businesses will be raised universally from 5% to 10%.

Statistics:

  • The government expects to lose around 1-2 trillion won (US$868 million) in taxes collected on a yearly basis due to the tax measures.
  • The tax break will result in an average of 166,000 to 187,000 won (US$1,450 to US$1,630) in tax cuts for about eight or nine million people.
  • The minimum corporate tax rate will be cut from 15% to 13% for big conglomerates starting in 2005.

Sources:

  • Yonhap
  • Ministry of Finance and Economy (South Korea)
  • Uri Party (South Korea)
  • National Assembly (South Korea)
  • Grand National Party (South Korea)