SUWON — Three local tax restructuring measures proposed by Gyeonggi Province Governor Choo Mi-ae as a remedy for the province's fiscal crisis have entered the legislative process at the National Assembly.
Gyeonggi Province said on the 1st that 18 lawmakers, including Rep. Kim Tae-nyeon of the Democratic Party of Korea representing Sujeong District in Seongnam, will introduce six bills on expanding local finances in sequence through the 2nd.
The bills call for raising the local consumption tax rate, transferring 5% of the national corporate tax to metropolitan-level local governments, and converting part of the local education tax levied on tobacco consumption into a regional resource facility tax for fire services.
The legislation would amend the Local Tax Act, the Value-Added Tax Act, the Corporate Tax Act and the Framework Act on Local Taxes. Of the six bills, two concern the local consumption tax, three cover the creation of a local corporate tax, and one addresses funding for fire services.
The amendments to the Local Tax Act and the Value-Added Tax Act would raise the local consumption tax rate to 40.3% of value-added tax revenue from the current 25.3%. The increase would be phased in at 5 percentage points a year over three years.
Gyeonggi Province says its revenue structure, which centers on acquisition tax, swings sharply with the property market and shifts in government policy. By expanding the share of the local consumption tax, a consumption-based revenue source, the province aims to make its finances more stable.
The province estimates that raising the rate to 40.3% would increase its revenue by about 8.3 trillion won ($5.9 billion) over the next four years.
The second measure is the creation of a local corporate tax. Under the amendments to the Corporate Tax Act, the Framework Act on Local Taxes and the Local Tax Act, 5% of the corporate tax, currently a national tax, would be converted into a metropolitan-level local tax. The bills would also add a local corporate tax as a new ordinary tax item at the metropolitan level.
The province argues that the gains from corporate growth and regional economic development should be reflected in metropolitan government finances. It also cited rising fiscal demands on metropolitan governments, not only for welfare and public safety but also for fostering advanced industries, expanding wide-area transportation networks and building industrial infrastructure.
The province expects the transfer of 5% of the corporate tax to generate about 4.3 trillion won ($3.1 billion) in additional revenue over four years.
The final bill would convert part of the local education tax levied on tobacco consumption into a regional resource facility tax for fire services. It applies to 43.99% of that tax, which is set to expire on Dec. 31, 2026.
Gyeonggi Province projects that channeling the money into fire services, including salaries for firefighters, would secure about 1.5 trillion won ($1.1 billion) in fire service funding over four years without any additional tax burden on residents.
If all three measures are enacted, the province said its own estimates show it could secure a base of about 14.1 trillion won ($10 billion) in additional revenue over four years.
The bills are tied to the government's 53rd national policy task, "expanding local finances to broaden fiscal autonomy and revitalize regional economies." That task calls for shifting the ratio of national to local taxes toward 7-to-3 and increasing local governments' own revenue sources.
Gyeonggi Province has repeatedly urged the government and the National Assembly to adopt the three local tax restructuring measures since the start of Choo's term as governor.
"The 53rd national policy task clearly sets out the expansion of local governments' own revenue sources and the strengthening of fiscal autonomy," Choo said. "Now that the three measures proposed by Gyeonggi Province have taken shape as legislation, we will work closely with the National Assembly and the government to strengthen local governments' fiscal autonomy and the foundation for sustainable growth."
