Tax Benefits Heavily Favor High-Income Earners in South Korea

A recent government analysis indicates that tax benefits, including deductions for insurance premiums and education expenses, are heavily skewed towards high-income individuals. The findings, detailed in the first-ever tax expenditure report submitted to the National Assembly, reveal that the top 10% of income earners receive more than half of the benefits from these specific deductions.

The report, submitted by the Ministry of Economy and Finance, shows that last year's national tax reductions totaled 76.1 trillion won, an increase of 5.6 trillion won from the previous year. This figure exceeded the legal limit for the tax reduction rate by 0.4 percentage points, reaching 15.9%. The government projects that tax reductions will reach 80.5 trillion won this year, with a tax reduction rate of 16.1%, staying within the legal limit of 16.4%.

“

The top 10% (10th quintile) accounted for more than half of the insurance premium and education expense deductions.

This analysis marks the first attempt to break down the distribution of major tax expenditures, such as income tax benefits, by income quintile. The results show a clear trend: as income levels rise, so does the concentration of tax benefits. High-income earners, who already bear a larger tax burden, consequently receive greater benefits from tax incentives. Specifically, the top 10% of income earners accounted for 77.6% of the total determined tax amount and 34.7% of major tax expenditures. Their share was particularly high in deductions for insurance premiums (51.5%), pension accounts (52.1%), and education expenses (50.4%).

Conversely, benefits like the Earned Income Tax Credit and tax reductions for employees in small and medium-sized enterprises were more concentrated among lower-income groups. The Earned Income Tax Credit, for instance, saw its largest share (18.5%) go to the 7th income quintile, with significant portions also benefiting the 6th, 5th, 4th, and 3rd quintiles. The lowest two quintiles received 9.8% and 9.6% of these benefits, respectively. This disparity highlights a regressive pattern in the distribution of certain tax benefits, where those with less capacity to pay taxes receive comparatively less relief.

“

High-income earners tend to have a higher tax burden, and consequently, their tax benefit also increases.