The South Korean government plans to overhaul 115 out of 241 tax expenditures. The initiative aims to replace tax deductions for marriage and childbirth with financial support, while also terminating ineffective programs. The government anticipates that this reform will generate approximately 2.5 trillion won in additional revenue.
According to the '2026 Tax Reform Plan' announced by the Ministry of Finance on August 3, the government will revise 115 of the 241 tax expenditures. This includes ending 20 long-standing and ineffective programs and transitioning 17 programs that require financial redistribution to financial support. The expected scale of the financial support transition is estimated at 1.1 trillion won.
Deputy Prime Minister and Minister of Finance Koo Yun-cheol emphasized during a briefing on July 31, "We will break away from the practice of continuously extending the sunset provisions of tax expenditures and will revise about 50% of the total 241 items, or 115 items. We will boldly terminate programs that have achieved their support objectives or have low effectiveness, and transition effective programs to financial support."
Initially, the government will convert tax deductions for childbirth, adoption, and marriage into financial support. Under the current system, couples can receive a tax deduction of 500,000 won each in the year they register their marriage. Additionally, for the first child, a deduction of 300,000 won is available, while the second child receives 500,000 won, and the third child or more receives 700,000 won. However, concerns have been raised that tax-exempt individuals are unable to benefit from these deductions.
To address this, the government intends to abolish the income tax deductions and transition to a financial support model to enhance income redistribution effects. Specific details of the program will be announced later by the Ministry of Planning and Budget.
Furthermore, the government plans to gradually reduce the individual consumption tax exemptions for electric and hydrogen vehicles, ultimately transitioning to financial support. Previously, the exemptions for electric and hydrogen vehicles were set to end next year, but the government now plans to phase them out by 2029.
There are also plans to convert the additional tax deduction for credit card use on public transportation into financial support. Sang Moon-hee, head of the tax policy division at the Ministry of Finance, stated, "There is a system that allows for an additional deduction of 40% for public transportation, and we will unify the additional deduction as a basic deduction and transition public transportation costs to financial support."
Changes will also be made to the additional deduction criteria for expenses related to books, performances, and museums, eliminating the total salary requirement and allowing all taxpayers to receive income deductions. However, the limit for additional deductions will be reduced by 1 million won.
Some items will be discontinued. The individual consumption tax exemption for hybrid vehicles, which currently has a limit of 700,000 won per vehicle, will sunset as its application period ends.
The tax benefits for small businesses maintaining employment will also expire, and the value-added tax refund system for foreign tourists receiving accommodation services will operate until June 30 of next year before concluding.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.