Taxes on South Korean Middle Class Sky Rocket

D-Bo , Feb. 16, 2015, 9:21 a.m.

Ordinary taxes paid by middle-income earners increased 6.3 times more than they did for the top 20 percent of income earners in South Korea in 2014, stoking public demand for a tax increase on the rich, official data showed Monday.  

According to numbers released by Statistics Korea, households with two or more family members who were classified as belonging to the middle or third tier paid an average 83,385 won (US$76.12) in taxes every month last year, a gain of 13,198 won from 70,187 won in 2013.

The third tier are people whose earnings placed them in the 40-60 percent bracket in terms of take-home pay, with average monthly income reaching 3,917,400 won. The 18.8 percent spike is significantly higher than the 3 percent gain for people in the top fifth of the income ladder, who paid 380,332 won per month. This is a gain of 11,209 won from 369,123 won paid in the previous year. The top tier is made up of households that make on average 8,129,500 won per month.

Ordinary taxes are a form of direct tax that include dues levied on earned income, property and business-related revenues that are generally fixed.  Data showed that the taxes paid by the forth tier that made 5,136,700 won a month grew 7.4 percent on-year, or 2.5 times faster than top households.

Tax gains for those in the lowest and next lowest income tiers that reported average monthly earnings of 1,460,500 won and 2,866,200 won, respectively, moved up 3.1 percent and 4.4 percent last year compared to the year before.

The statistical data then showed tax rates for middle income households grew 2.7 percent in 2013 from the year before, compared to 0.9 percent for the top tier.  In 2013, taxes levied on the lowest income households grew the sharpest at 9.7 percent on-year, with the next lowest and next highest gaining 5.4 percent and 6.3 percent on-year, respectively.

In contrast, taxes levied on the highest income earnings households grew the steepest at 10.5 percent on-year in 2012, with the middle tier gaining 10.3 percent and the lowest gaining 8.6 percent.  Private think tanks said that with middle income earners being strapped with higher outlays in rent and education, any rise in ordinary taxes will hurt them more than those that make more money.

Monthly income of the middle or third tier and fourth tier households rose 3.6 percent and 2.9 percent last year, respectively, which is smaller than the tax rate gains. A source at the Hyundai Research Institute said there is a need to carefully set taxation rates to take into account income so as to make certain the government spreads out the burden among different income groups.  Others said constant fine-tuning of taxes is a must to ensure fair distribution of wealth.

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