SEOUL, Nov. 8 (Korea Bizwire) — A study said Korea’s income redistribution effect through taxation is lowest among the Organization for Economic Cooperation and Development member nations.
According to a report “Implications for Taxes’ Income Redistribution Effect” published by the National Assembly Research Service on November 7, the ratio of income redistribution improvement through policy measures such as taxation and transfer payments was 9.17 percent as of 2010.
This is 31st out of 32 OECD members whose average income redistribution improvement effect was 34.23 percent. The ratio is calculated by subtracting the after-tax Gini coefficient from the pre-tax Gini coefficient. A Gini coefficient of 0 means perfect equity while that of 1 implies perfect inequity.
Korea’s pre- and after-tax Gini coefficients were 0.34 and 0.31, which are not so different. In contrast, the coefficients for Ireland (0.59 to 0.33), England (0.52 to 0.34) and Japan (0.49 to 0.34) were widely different. The report said this is largely because Korea’s share of individual income tax in the total GDP is lower than that in other countries.
The ratio of tax and social contributions (such as national pension premiums) to the GDP for Korea has continued to rise from 19.5 percent in 1999 to 26.8 percent in 2012. Meanwhile, the tax-to-GDP ratio rose from 17.5 percent in 1990 to 21.0 percent in 2007 and 20.2 percent in 2012.
The major reason for the tax and social contribution-to-GDP ratio is higher than the tax-to-GDP ratio has to do with the fact that the government has steadily raised the national pension contribution amount for years.
Korea’s ratio of individual taxes to the GDP is relatively lower than that for major OECD nations. For example, the individual tax-to-GDP ratio for Korea was 3.8 percent as of 2011. This is very low comparing to other countries such as the United States (8.9%), Japan (5.3%), Britain (10.1%), France (7.5%), and Germany (9.1%).
The report recommended, “The tax burden ratio of Korea is still low comparing to many other OECD countries. In order to increase the tax base, it is necessary to adjust the ratio upward to a reasonable level.
At the same time, the government needs to reduce the blind spots for taxation while assessing incomes of self-employed business operators and individuals more precisely.”
By Sean Chung (firstname.lastname@example.org)