A Study on the Evaluation of Income Taxation Fairness and Rational Methods for Tax Increase
Asian Tax Journal Vol. 14 No. 4 (2013), pp. 41-72
Abstract
The current administration is exerting itself to secure financial resource in order to realize its welfare pledge. Accordingly, this study has reviewed the tax burden ratio among OECD members to suggest the grounds for the argument on tax increase and has evaluated the fairness of taxation for the suggestion of rational methods for tax increase with the focus on income taxation (Income tax and Corporate tax). We use National Tax Service annual statistics to analyze the equity of taxation. The plan of tax increase will be decided by comparison with the tax burden ratio among OECD countries. We analyze the effect of tax increase in view of income taxation. The increase of tax burden ratio in Korea needs an approach from the long－term viewpoint and its sharp increase is not desirable since the tax payers feel a relatively much tax burden if the increase should be higher than the rate of economic growth. A method of distribution able to make both income tax and corporate tax considering the burden of tax increase is desirable to distribute proportionally the tax burden ratio by the ratio of the two over domestic taxes. With the increase of 1%p of the tax burden ratio, there should be 5,881 billion won increase of income tax and 5,852 billion won increase of corporate tax. In case of adjusting the section of assessment standard of general income tax, the result of tax revenue income is about 343.4 billion won and in case of adjusting only the tax rate of high income earners it will be around 908 billion won. If both of the two are adjusted, it will be 6,794.6 billion won. Realistically, when there is 10% of reduction at tax deduction and exemption, the tax revenue to be secured will amount to 166.8 billion won. The best method for increasing in income tax is to adjust both assessment standard and tax rate. When there is a raise of corporate tax rate in the method of practicing the increase of corporate tax, the increase of tax revenue will be 7,492.2 billion won and when both section of assessment standard and tax rate are adjusted there will be the 6,158.5 billion won increase of corporate tax. 10% reduction of tax exemption will result in securing the tax revenue of 740.1 billion won. If there is 10% reduction of non－taxable income, the effect of tax revenue increase (in case of applying 22% of tax rate) is relatively low with 6 billion won. It is indispensible to adjust the section of assessment standard and tax rate for the method of increasing corporate tax, and the tax deduction and cut of non－taxation can be utilized for simultaneous approach. This study can play the role of fundamental data in the future when it will be necessary to improve the assessment standard of income tax and corporate tax, and the taxation system. In particular, the effect of tax increase can be utilized in the future by suggesting methods of tax revenue increase and assuming their effect.
Keywords
- tax burden ratio
- the fairness of taxation
- tax revenue increase
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