1 Welcome! Participants of OECD BIAC meeting in Seoul

2 Presented by Yong Min Kim Deputy Minister for Tax and Customs Ministry of Finance and Economy Republic of Korea

3 The recent tax reforms in Korea

4 ▷ The tax reforms undertaken in 2005 => main policy directions => rationale behind such directions

5 ▷ Assist economic recovery and promote growth potential ▷ Broaden revenue base thru phasing out incentives and non-taxation provisions ▷ Brace for rapidly aging society and narrow growing gap between rich & poor ▷ Stabilizing real estate market and ensuring equity in taxation ▷ Support regionally balanced development ▷ Introduce taxpayer-friendly features

6 ▷ Assist economic recovery and promote growth potential (over the past three years) => promote corporate investments => encourage start-up companies => support the service industry as a whole

7 ▷ Assist economic recovery and promote growth potential Specific measures include => expanding incentives for R&D and for attracting FDI => lowering personal and corporate tax rate by 1 and 2 percentage point => reducing the list subject to the special consumption tax

8 ▷ Assist economic recovery and promote growth potential (last year) => Revising the corporate restructuring regime => Bring the international tax regime more in line with international standards

9 ▷ Broadening revenue base thru phasing out incentives and non-taxation provisions => Phase out incentives and non-taxation provisions deemed ineffective

10 ▷ Broadening revenue base thru phasing out incentives and non-taxation provisions => cost of tax expenditure at 14% of the total national tax revenue in 2005 => Between 2001 and 2004 growth of total tax expenditure: 11.9% growth of national tax revenue: 9.2%

11 ▷ Brace for the rapidly aging society and narrow the growing gap between the rich & the poor

12 ▷ Brace for the rapidly aging society and narrow growing gap between rich & poor => Rapidly aging society with reproduction rate of 1.16 per married couple => Growing gap between rich and poor in the wake of the financial crisis

13 ▷ Brace for the rapidly aging society and narrow growing gap between rich & poor (measures taken over the past three years) => Raising the deductible amount for children’s education => Expanding per capita deduction for children aged 6 or below

14 ▷ Brace for the rapidly aging society and narrow growing gap between rich & poor (measures taken last year) => Raise the deductible ceiling for pension payments => Introduce measures to support the self-employed small business

15 ▷ Stabilize the real estate market and ensuring equity in taxation => Reining in real estate speculation has always been a challenge…

16 ▷ Stabilize the real estate market and ensuring equity in taxation Reinforce taxation on gains from speculative real estate transactions Some anti-speculative measures in 2005 (increasing capita gains tax) ▷ owner of 3 houses or more: 60% (from ’05) ▷ owner of 2 houses: 50% (from ’07) ▷ non-biz purpose land : 60% (from ’07)

17 ▷ Stabilize the real estate market and ensuring equity in taxation => Strengthen property holding tax (Comprehensive Real Estate Holding Tax) => Transaction-related tax rates will be reduced

18 ▷ Support regionally balanced development nationwide

19 ▷ Support regionally balanced development nationwide => 25% of total population living in and around Seoul resulting in a number of negative effects

20 ▷ Support regionally balanced development nationwide (measures taken recently) => Providing tax incentives for companies to relocate in areas outside the Metropolitan Seoul => Mid and small-sized companies outside Seoul receive preferential treatment

21 ▷ Support regionally balanced development (Measure taken last year) => Renewing these provisions

22 ▷ Introducing taxpayer-friendly features => Simplify year-end tax filing by waiving documentary evidence => Information on receipts to be sent to the National Tax Service

23 Last but not least Thank OECD and its staff members for providing us with valuable information that helped determine our policy directions

24 Comprehensive review of the Korean tax regime conducted by OECD In 1999 offering much-needed objective barometers against which to measure validity of our policy directions

25 OECD Committee on Fiscal Affairs (CFA) serves as the most authoritative arena for discussing tax policies Encourage the private sector to attend OECD BIAC meetings

26 Thank you very much!

27 Wish you a pleasant trip back home!