This report aims to analyze tax incidences of credit card usage deduction across different income classes.
Above all, the deduction turns out not corresponding with vertical equity principle of taxation, considering larger part of benefits from this deduction seems to be generated among higher income workers than lower income ones.
In addition, the size of tax expenditure by this deduction is estimated as 899 billion won in 2009, rather than 1,893 billion won, which is reported by the Administration. This report points out that the Administration ignored deduction by income distribution when estimating the figure, hence overestimating the effect.
The deduction was originally designed to bring more transparency in reported tax bases by encouraging credit card usage among consumers. Considering relative size of underground economy has diminished since beginning of the deduction, there remains little reason to maintain such regressive tax expenditure in the future.
Above all, the deduction turns out not corresponding with vertical equity principle of taxation, considering larger part of benefits from this deduction seems to be generated among higher income workers than lower income ones.
In addition, the size of tax expenditure by this deduction is estimated as 899 billion won in 2009, rather than 1,893 billion won, which is reported by the Administration. This report points out that the Administration ignored deduction by income distribution when estimating the figure, hence overestimating the effect.
The deduction was originally designed to bring more transparency in reported tax bases by encouraging credit card usage among consumers. Considering relative size of underground economy has diminished since beginning of the deduction, there remains little reason to maintain such regressive tax expenditure in the future.
Sung Myung-kee