| Considerations on Taxation of Agricultural Income in Korea | |||
|---|---|---|---|
| Author | Lim, Soyeong | ||
| Views | 11163 | Publication Date | 2017.02.19 |
| Original | |||
|
Background of Research Crop income has not been taxable since 2005. Though farmers with income more than one billion won from crop farming other than food crops should declare their income and be subject to income tax from year of 2016, an argument continues regarding on the taxation equity between farmers with tax exemption and those without tax exemption as well as between agriculture and other industries. Moreover, tax exemption on income from crop farming is a factor hindering efficient agricultural administration from three reasons. First, because farmers are not obliged to declare their income, they have weak motivation to keep books and records, which result in limited application of management techniques in their farming. Second, no income declaration record can be an obstacle to farmer’s more opportunities for investment because of uneasy access to the funds of banks. Third, income stabilization programs and welfare programs for farmers are used for all farmers regardless of recipients’ income level. Being acknowledged that the amount of public money transferred should be different according to recipient’s income level for efficiency of policy, the fact that there is no reliable record to prove applicant’s income is one of factors to deteriorate efficiency of government policy. Therefore, it is necessary to reconsider if tax exemption on crop income should be maintained. However, there are socio-economic costs such as farmer’s tax resistance, an increase in the costs of tax administration, increased tax burden among farmers as well as benefits if tax exemption is canceled and crop income starts to be taxable income. Thus a balanced examination should be done on the continuation of tax exemption. Hence, this study comprehensively assessed the socio-economic costs and benefits of the continuation of tax exemption and drew a conclusion. Method of Research Four approaches were applied in this study. First, an estimation of farmer’s tax burden was done by using the Household Economic Survey, National Tax Statistics, and Household Survey Data. Second, a scenario analysis was conducted to examine the impact of taxation on crop income. Third, taxation on agricultural income in France, Japan, the U.S. and Canada was introduced to bring out lessons from other countries. Moreover, meetings with experts on tax and agriculture were held on a regular basis to discuss several issues related to taxation on crop income so insightful comments on the study were obtained. Research Results and Implications The results of scenario analysis showed that the number of farmers who pay income tax will increase no matter what scenario is applied. Moreover, the average amount of paid tax also increased which indicates that the tax burden clearly increased among farmers. This can bring out farmer’s bigger tax resistance. Conflicts between farmers who pay income tax (forestry and livestock income earners) and farmers who do not pay income tax (crop farmers) can cause social cost. The last cost is an increase in administrative costs required for tax collection, which can be divided into tax collection costs and tax compliance costs. In the end, an increase in the cost of taxation administration can be affected by the increase in the tax compliance costs rather than administrative cost for national tax. The benefits of taxation on crop income are divided into the benefits from taxation itself and the benefits from income declaration made for tax payment. The former includes an increase in tax revenues, and an increase in social welfare resulting from improved social equity. The latter includes farmers’ efficient management of their business, more opportunities for investment, and expanded sales channels by ensuring the base for business registration, and development of agricultural administration. This study does not provide money metric measures of all the cost and benefit of taxation on crop income because some of costs and benefits are nontangible. However, this study concludes that the benefit of taxation on crop income can exceed the cost and tax exemption on crop income should not continue. The benefit of taxation on crop income can expand to the whole society beyond the agricultural sector while the major costs are to be borne by farmers who were not income taxpayers. Especially, the change in taxation can cause bigger economic burden to low income farmers compared to high income farmers. Thus it is necessary to devise ways to reduce tax burden for low income farm households. Furthermore, the transition to taxation on crop income should be carried out as long-term and in stages. The agreement among farmers on taxation on crop income should be preceded to minimize social conflict caused from tax policy changes. Researchers: Lim Soyeong, Kim Yunjin, and Lee Shil Research period: 2016. 1. ~ 2016. 10. E-mail address: sylim@krei.re.kr |
|||