사진 확대 (AFP/Yonhap)
The International Monetary Fund (IMF) has recommended raising South Korea’s value-added tax (VAT) rate to bolster revenue. The recommendation comes as concerns mount over declining tax revenue and growing fiscal imbalances fueled by expansive spending pledges from presidential candidates ahead of the presidential election.
According to the Korea Institute of Public Finance on Sunday, the IMF included the proposal in a report released earlier this year following its annual consultations with the Korean government, the Bank of Korea, and other institutions late last year. The outlined measures include raising the VAT rate and adjusting current exemptions. The IMF also advised reviewing the widening scope of personal income tax deductions.
The recommendation stems from Korea’s relatively low VAT rate compared to other advanced economies. The country’s 10 percent rate falls well below the average of 18.5 percent, the IMF noted. While many developed nations have reduced VAT exemptions, Korea‘s have continued to expand, it added.
The Organisation for Economic Co-operation and Development (OECD), in the meantime, has made a similar recommendation last year.
Since its introduction in 1977, Korea’s VAT rate has never been changed. Successive governments have avoided raising the rate due to concerns over inflation and its disproportionate impact on low-income households.
According to the National Assembly Budget Office, Korea’s VAT rate remains low by global standards.
As of 2023, VAT stood at 20 percent in the United Kingdom and France, 22 percent in Italy—the highest among major economies—and 19 percent in Germany. The OECD average is 19.2 percent, with only Canada (5 percent) and Switzerland (7.7 percent) maintaining lower rates than Korea among the 37 member countries.
By Moon Ji-woong and Chang Iou-chung
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