The “2015 Tax Revision Proposal” that the administration submitted to the National Assembly on September 11 set the basic orientation of economic revitalization, stabilization of public welfare, fair taxation, and rationalization of the tax system with a focus on realizing a “tax system that is competitive, fair, and based on principles.” 

  This report analyzed the policy effect and revenue effect of the bill with respect to revisions to non-taxation and tax reduction & exemption systems and means of increasing tax revenues. Though the basic orientation of the government’s proposed tax bill is considered timely, it is expected to support the government’s policies only to a limited extent given the economic situation. The bill may also exacerbate the budget deficit due to inadequate modification to non-taxation and tax reduction & exemption systems and lack of mid- and long-term measures to increase tax revenues.     

   It seems that economic circumstances at home and abroad will blunt the effectiveness of the programs introduced to support economic recovery. For instance, the Taxation to Promote Youth Employment will have an uncertain effect toward increasing employment opportunities given the highly volatile economic circumstances. The imminent hike in the key interest rate by the US Federal Reserve and the economic downturn in China are reducing incentives to introduce the Foreign Stock Investment Fund. Tax benefits for the Individual Wealth Accounts are likely to benefit high-income earners considering that such a high percentage of households is running up debt and that a greater amount paid serves to increase tax avoidance.

  The government estimated that the revenue effect for this year based on the tax revision bill compared to the previous years would be 1.0892 trillion won over the next five years (681.1 billion won based on the NABO estimation). As this estimation is merely half of the average revenue effect of the past three years (2012‒2014; 2.16 trillion won), it appears insufficient to secure adequate tax revenues to meet the increasing spending requirements. The drop of tax revenue is largely attributed to inadequate modifications to non-taxation and tax exemption systems. Of 88 items that reached their sunset this year, 19 (21.6 percent) are scheduled to expire. However, the expiration of a large majority of the sunset items was extended, with the result that the amount modified merely totaled 246.8 billion won, one-fourth of the average amount for the past three years (2012–-2014) of 993.4 billion won.

  NABO suggested that the government reconsider what constitutes an appropriate tax burden and take medium- and long-term measures to increase tax revenue, particularly in light of the low economic growth and the rising expenditures on social welfare. According to the 2015‒2019 National Fiscal Management Plan (September 2015), the administration projects the tax burden rate at 17‒18 percent during the period of 2015 to 2019, which was the level of the 2000s when economic growth was high and the percentage of total expenditures on welfare was low. The administration needs to make comprehensive tax reform plans instead of merely offering alternatives for specific tax items and build public consensus on the plans, in preparation for contraction of the tax base and higher welfare spending in the future.