Some military families could benefit from Korean tax cut
September 4, 2008
SEOUL — Some servicemembers with South Korean spouses could see their household incomes rise in the wake of a 26 trillion won (about $22.9 billion) tax cut announced by the South Korean government Monday.
The tax cut, which includes many proposals that will be phased in over five years, comes as fears of a national economic crisis have pummeled South Korean currency and equity markets.
The South Korean currency ended the day at 1,134 won to the dollar Tuesday. Last November, 898 won bought a dollar.
Meanwhile, the benchmark KOSPI Index, the South Korean version of the Dow Jones Industrial Average, lost four percent of its value Monday and fell slightly Tuesday.
Under the announced tax plan, all South Koreans will see a 2 percent income tax cut by 2010. Workers will be able to deduct an extra million won ($882) for a child in school or college. They also will be able to deduct 7 million won ($6,173) for medical expenses, up from 5 million won.
A 5 percent cut in the maximum corporate tax rate, along with lower capital gains and inheritance taxes, also are included.
For U.S. military spouses, the package will ease the tax burden on those working off base.
Economists had mixed opinions on whether the tax plan would provide a large enough economic boost.
"Personally, I’m skeptical of the tax-cut plan," said assistant professor Park Ki-young of the Yonsei University graduate school of economics. "These types of tax-cut plans never have been as effective as expected."
Economist Jeon Hyo-chan of the Samsung Economic Research Institute said the nation isn’t in a full-blown panic, but remains in economic trouble. "I think [the] tax-cut plan announcement is a positive measure in helping prevent reduction of consumption, though it still remains very questionable how far these measures will go," Jeon said.
Park and Jeon both said they didn’t think the tax plan would help the sinking won. Jeon says the currency may still have room to fall as foreign investors sell their won-based investments in exchange for dollar- and euro-backed assets.
However, Jeon and other economists expect the won to bounce back by the end of the year.