A Study on the Introduction of Comprehensive Income Concept
Asian Tax Journal Vol. 9 No. 2 (2008), pp. 43-72
Abstract
This study intends to study the scope of taxable income items through the analysis of the concept of 'income' in the Individual Income Tax Act('IITA') of Korea. Not a few items of income are found to be excluded from the taxable income items. One of the key reasons of such exclusion is the government policies such as boosting stock markets. In this sense the issue of how to construct the concept of 'income' does not matter so much. Examples of foreign countries do not seem to be so different in this regard. Since '80's major foreign economies have leaded tax competition by broadening tax base and lowering tax rates. In this process the scope of taxable income items has expanded while that of tax benefits has shrunk. But the expansion of scope of taxable income items was accomplished not by the introduction of 'comprehensive income' concept but by the addition in the list of taxable income items. Even in the U.S. where the 'comprehensive income' concept is generally accepted, the statute does not give the definition of 'comprehensive income'. Although the trends in and ouf of this country do not seem to support the introduction of 'comprehensive income' concept, they may not excuse the shortcomings of the current scheduler income system of Korea that it is devoid of any reliable statutory mechanism to cope with the issue of taxation on new types of income. The introduction of 'comprehensive income' concept, whether it is achieved in a full and complete manner or not, will surely help to improve the equity, neutrality and simplicity of income taxation of Korea. In this juncture the comprehensive income concept for each type of statutory income such as interest income, dividend income, employment income and so forth other than that for all types of income in one shot may serve as a good compromise to address the issue. Currently such concept has been already introduced for two types of income - interest income and dividend income - in the IITA. If it is extended step by step to other types of incomes such as employment income, business income and so forth, the actual tax base will be broadened as to approach to the ideal tax base under the 'comprehensive income' concept in the future. One thing that should be cherished in the heart of the policy makers in this process is that the comprehensive income is 'net comprehensive income' rather than 'gross comprehensive income' or 'comprehensive revenue', which means that the dedu ction of ordinary and necessary expense attributable has to be allowed once a type of income is defined in a comprehensive manner in the IITA.
Keywords
- income tax
- comprehensive income
- taxable income
- tax base
- ordinary and necessary expense
- equity
- neutrality
- simplicity
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