South Korea’s tax collected from the earnings of salaried workers topped 60 trillion won ($41.6 billion) for the first time last year, nearly matching corporate tax revenue. It accounted for over 18% of total national tax revenue, the highest on record. While rising nominal wages steadily increased the tax burden on workers, sluggish corporate earnings caused corporate tax revenue to plummet for the second consecutive year.
According to Democratic Party lawmaker Lim Kwang-hyun and the Ministry of Economy and Finance, South Korea’s earned income tax revenue reached 61 trillion won last year, up 3.1% (1.9 trillion won) from the previous year. This is 2.4 times the 25.4 trillion won collected in 2014. Despite a dip in 2009 due to the global financial crisis, earned income tax revenue has risen for 15 consecutive years since 2010. The steady increase is primarily driven by rising nominal wages, as inflation prompts companies to raise salaries. In the third quarter of last year, the average monthly wage for salaried households rose 2.6% year-on-year to 5.06 million won, up 16.9% from five years ago.
The steady rise in earned income tax revenue is also linked to the expansion of the job market, particularly among salaried workers. Unlike the self-employed, who file taxes independently, employees have taxes deducted directly from their paychecks. According to Statistics Korea, the number of salaried employees increased by 215,000 last year, while the self-employed workforce (including unpaid family workers) declined by 55,000. Over the past decade, total employment grew by 10.3%, with salaried employment rising by 16.3% and self-employment falling by 5.9%.
In contrast, corporate tax revenue was 62.5 trillion won last year, only 1.5 times higher than a decade ago. A prolonged downturn in the semiconductor industry led to a two-year decline in corporate tax revenue, bringing it closer to earned income tax levels. Corporate tax revenue, which reached 103.6 trillion won in 2022, fell sharply to 80.4 trillion won in 2023 due to deteriorating corporate earnings and continued to decline last year. As a result, the corporate tax share of total tax revenue dropped from 26.2% in 2022 to 18.6% in 2024, while the earned income tax share rose from 14.5% to 18.1%, the highest since records began in 2005.
Concerns remain that earned income tax revenue could continue approaching corporate tax levels this year. The Ministry of Economy and Finance projects corporate tax revenue to reach 88.5 trillion won this year, nearly 24 trillion won higher than earned income tax revenue (64.7 trillion won). For this forecast to materialize, corporate tax revenue must rise by 26 trillion won from last year. However, with the continued downturn in the construction and retail sectors since the second half of last year, it remains difficult to predict whether this target will be met.
Tax experts stress the need for a stable tax base to avoid repeated reliance on salaried workers whenever corporate tax revenue declines. They suggest revising excessive tax exemptions and deductions to reduce the tax-exempt population, which stood at 33% in 2023, and exploring tax reforms that shift the focus toward consumption-based taxes like VAT.
Experts say stabilizing the tax base is necessary to avoid relying on salaried workers whenever corporate tax revenue fluctuates. They suggest revising excessive tax exemptions and deductions to reduce the tax-exempt population, which stood at 33% in 2023, while also calling for tax reform focused on consumption taxes, such as VAT.
South Korea’s top earned income tax rate, including local consumption tax, stands at 49.5%, higher than in Germany (47.5%), Australia (47%), the U.K. (45%), and the U.S. (43.7%). However, the country’s earned income tax revenue as a percentage of GDP is only 6.6%, falling short of the OECD average of 8.2%, mainly due to the high proportion of tax-exempt individuals. Kim Woo-chul, a professor of taxation at the University of Seoul, warned, “If earned income tax continues to rise while wage growth fails to keep up with inflation, tax resistance will inevitably grow. Stabilizing the tax base by reducing the number of tax-exempt cases is crucial.”
