Governor Choo Mi-ae Calls for Local Tax Reform...National Assembly Responds with 6 Bill Proposals

A tax reform plan proposed by Gyeonggi Province Governor Choo Mi-ae as a solution to overcome the province's fiscal crisis is being materialized into legislative procedures in the National Assembly.

According to Gyeonggi Province on December 1st, 18 National Assembly members including Rep. Kim Tae-nyeon (Democratic Party, Seongnam Sujeong District) plan to sequentially propose 6 bills containing three major tasks for restructuring the local tax system by December 2nd.

The 6 bill amendments include ▲Two amendments to the Local Tax Law and Value-Added Tax Law ▲Three amendments to the Corporate Income Tax Law, Local Tax Basic Law, and Local Tax Law ▲One amendment to the Local Tax Law.

Looking at the specific contents, the first set of amendments to the Local Tax Law and Value-Added Tax Law (2 bills) includes content to increase the local consumption tax rate from the current 25.3% of value-added tax to 40.3% (increasing by 5% annually over 3 years).

The aim is to supplement the revenue structure centered on acquisition tax, which fluctuates significantly due to real estate transactions and changes in government policy, and to expand the proportion of local consumption tax based on consumption to secure a stable revenue base for local governments.

The three amendments to the Corporate Income Tax Law, Local Tax Basic Law, and Local Tax Law were revised with the aim of establishing an equitable revenue distribution structure so that regional governments can also benefit from the fruits of corporate and regional economic growth. Accordingly, the amendments include establishing a "local corporate tax" in regional tax categories (ordinary taxes) and converting 5% of national corporate income tax to local corporate tax.

Gyeonggi Province estimates that if 5% of corporate income tax is transferred to regional taxes, there will be an effect of approximately 4.3 trillion won in increased provincial tax revenue over four years.

The one amendment to the Local Tax Law includes converting a portion (43.99%) of the local education tax on tobacco consumption tax, which is scheduled to sunset on December 31, 2026, to regional resources facilities tax on firefighting to be used for support such as firefighting personnel costs.

Through this, Gyeonggi Province anticipates that approximately 1.5 trillion won in firefighting resources will be secured over four years without additional tax burden on residents.

If all three tasks are institutionalized, based on the province's estimates, Gyeonggi Province projects that it will secure an additional financial base of approximately 14.1 trillion won over four years.

This proposal of 6 amendments aligns with the government's national agenda of "expanding autonomous fiscal authority and revitalizing the regional economy through expanded local finance" (National Agenda Item 53). National Agenda Item 53 includes as major tasks expanding local autonomous revenue sources, improving the national tax to local tax ratio to approximately 7:3 level to increase local financial autonomy, and strengthening local revenue expansion.

Governor Choo Mi-ae stated, "National Agenda Item 53 clearly shows the direction of expanding local autonomous revenue sources and strengthening autonomous fiscal authority. Since the three major tasks for restructuring the local tax system that Gyeonggi Province has been proposing are now being materialized through National Assembly legislation, we will closely coordinate with the National Assembly and the government to strengthen the fiscal autonomy of local governments and the foundation for sustainable regional economic growth."