A Study on Improvement of Income Taxation on Labor Service Provider
Asian Tax Journal Vol. 16 No. 6 (2015), pp. 109-133
Abstract
It is not recent for non-regular workers or the independent businessmen with low income to be an issue our country has faced. Relevant tax law also has the same issue. Nevertheless, the reality is that taxation conception of income of labor service provider is defined not in regular law system but in the general provisions of expense rate application over simple expense rate and basic expense rate. Despite relevant tax law alienated from reality, there is rarely considered the characteristics of labor service provider in tax law without method. In other words, it seems for labor service provider to be left out of the consideration of tax law. What’s worse, there are few relevant studies. Establishing the issues in income taxation on labor service provider, this study considers two types of labor service provider and the following is the suggestion of the improvement plans approaching the related issues comprehensively. First of all, in case of fictitious daily worker as labor service provider, the taxation principle for daily worker is to be applied. However as its method of income generation is different from other types of daily worker whose income is on daily basis, this study insists that such difference be considered. Invoking the taxation on other incomes, it suggests that income tax is deducted as withholding tax at low rate not by flat rate but by the amount after deducting certain proportion as necessary expense and the case over the specific limit is imposed as total income tax. Or it deserves consideration to unify 1 % of withholding tax for labor service provider in order to be released from vexatious work of total income declaration or for taxation authorities to be out of heavy taxation task. The next is three suggestions for professional labor service provider. Firstly, since it is unrealistic for professional labor service provider to collect the evidential document for approval of expense in advance, this study suggests that certain proportion of total income is to be regarded as depreciation of initial expense, a sort of necessary expense. As for deduction rate, the differential tax rate is applied by occupational cluster for specific period from the point of income generation. It is reasonable to make this tax rate differential by each section of income and reduced gradually. Considering professional labor service provider has necessary expense undistinguishable from living cost, the second suggestion is to approve its living cost as well as the existing necessary expense directly related to total income as additional necessary expense. The necessary expense relevant to living cost is applied by occupational cluster, whose amount for deduction of estimated expenses is calculated by multiplying a certain rate of income. It is reasonable to make this tax rate differential by each section of income and reduce gradually as investing cost for starting business. The third suggestion is to apply relatively low tax rate to professional labor service provider under the consideration the nature of intensive earning its lifetime income in specific period, the reduction ratio of which is to be differential by occupational cluster. The annual tax multiplied years method applicable to retirement income tax is available to relative low rate of taxation.
Keywords
- Labor service provider
- the taxation on other incomes
- investing cost for starting business
- the necessary expense relevant to living cost
- the annual tax multiplied years method
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