Presidential hopefuls have promised to lighten the load on taxpayers by increasing the basic income tax deduction, which has not been adjusted in 16 years. However, experts caution this might exacerbate South Korea’s anggaran shortfall unless there is a clear strategy for generating additional revenue to offset the change.
The governing Democratic Party of Korea (DPK) has proposed a legislation aimed at increasing the yearly deductible amount from 1.5 million won to somewhere within the range of 1.8 million won to 2 million won for each perorangan. On the other hand, Kim Moon-soo, who is running as a presidential candidate under the conservative People Power Party (PPP), has suggested an even higher limit, recommending it be raised to 3 million won.
These commitments may resonate with salaried employees and independent professionals but could substantially decrease governmental funds precisely when fiscal conditions are already precarious. According to the National Assembly Budget Office (NABO), increasing the deductible amount to 2 million won would result in an approximate reduction of yearly income tax revenues by around 5.2 trillion won—equivalent to 1.6% of the expected tax intake for 2024—which would accumulate to a total deficit of 26.4 trillion won over half a decade beginning in 2026.
No proposals have been put forward by either side to compensate for the lost income. The promised tax cuts are criticized as mere vote-catching strategies with scant consideration of long-term financial stability, according to detractors.
The DPK bill, submitted by lawmaker Cho In-cheol, also seeks to expand eligibility for dependent deductions — including children, siblings and grandchildren — from under age 20 to under 24. The income threshold for dependents would rise to 2 million won annually, or 7 million won if the dependent has only earned income.
As stated by NABO, the suggested modifications would lead to a decrease in annual labor income tax revenues by approximately 3.1 trillion won, along with a reduction in earnings from self-employed individuals and those working multiple jobs by around 2.1 trillion won.
In 2023, approximately 25.4 million people in South Korea – which represents about half of the country’s total population – have taken advantage of the present basic deduction system. This includes around 13.95 million individuals who earn their primary income through work and another 11.47 million who file taxes as general income earners. Increasing this deduction could impact a significant number of potential voters, thus rendering such an initiative appealing for political gains despite possible economic hazards during campaigns.
Since 2009, the standard deduction has stayed constant at 1.5 million won after being increased from 1 million won. Over this period, taxable earnings have surged almost fourfold—rising from 15.6 trillion won in 2008 to an estimated 61 trillion won in 2024—nearing parity with corporate taxes. In the latest figures, earned income tax comprised 18.1% of all collected taxes last year compared to just 9.3% back in 2008.
The surge in tax receipts has led some experts to call for easing the burden on workers. “The stagnation in basic deductions over the past 16 years has significantly increased the tax load on individuals,” said Yoo Ho-rim, a professor at Kangnam University. “There is a clear need to reduce that burden in some form.”
However, the lack of a strategy to tackle the revenue gap has sparked worries. In 2023, the nation faced a tax deficit of 56 trillion won, followed by another one amounting to 31 trillion won in 2024. With expectations of continued decline due to challenging global economic conditions and diminishing exports, experts caution that larger shortfalls might compel the administration to take on additional borrowing, thereby jeopardizing financial prudence.
Tax scholars argue that instead of short-term relief, the income tax system needs a structural overhaul. “The government has long layered temporary deductions — for education expenses, credit card spending and so on — on top of each other,” said Kim Woo-chul, a professor at the University of Seoul. “We need to streamline the system while raising the basic deduction in a coherent way.”
Some warn about pre-election handouts that lack financial prudence. “As the election approaches within a month, candidates are concentrating on sweet promises such as reducing taxes,” explained Professor Oh Moon-sung from Hanyang Women’s University. “However, neglecting the expenses associated with these policies does not demonstrate leadership grounded in responsibility.”