(News Focus) Debate heats up over unification tax

SEOUL, Aug. 16 (Yonhap) -- A heated debate raged in South Korea on Monday over
whether or how to levy a special tax proposed by President Lee Myung-bak to
finance preparations for possible future reunification of the two Koreas, while
political parties remained at odds over the feasibility of the proposal.
In his address on Sunday marking the 65th anniversary of Korea's independence
from Japan's 1910-1945 colonial rule, Lee called for a "unification tax" to help
the South prepare financially for reunification, which he said "will definitely
happen."
Lee, however, didn't elaborate on how he would impose such a tax, let alone the
taxation volume, leaving experts and legislators to discuss the matter. South
Korea could shoulder US$1.3 trillion in costs if it reunifies with North Korea,
according to a study commissioned by a National Assembly committee.
The Presidential Council for Future and Vision has also forecast that the amount
of South Korea's unification expense would surge seven-fold if North Korea
collapses in a political upheaval before being absorbed into the South.
Those concerned that an additional form of tax will only increase the burden on
taxpayers are trying to suggest other ways to finance preparations for
unification.
One is to raise the South's value-added tax (VAT). Proponents of this idea
believe increasing rates for an existing tax would be met with less opposition
than creating a new category of direct tax. They say the South Korean VAT rate of
10 percent is 7.7 percentage points lower than the average of Organization for
Economic Cooperation and Development (OECD) members.
Others have called for reviving the national defense tax, which was abolished in
December 1990. Issuing bonds or lottery tickets whose proceeds will form a
unification-related fund are also being discussed.
Another possibility is to follow Germany's example. After its reunification,
Germany levied a solidarity tax starting in 1991. It was initially set at 7.5
percent for an individual and company income tax and was later lowered to 5.5
percent of the income tax.
"President Lee doesn't call for the immediate imposition of a unification tax.
Such a tax, if imposed, will be visible only in the next administration," Rep. Na
Seong-lin of the ruling Grand National Party (GNP) said in a radio interview.
"Amid speculation about Kim Jong-il's health problems and the North's worsening
economic crisis, the need for us to raise unification expenses has grown bigger
and bigger. We should assume greater responsibility for North Korea if we don't
want to lose it to China in the aftermath of its possible collapse."
Related Cabinet ministries declined to speculate on how preparations for
unification will be funded. An official at the unification ministry said
discussions for Lee's idea of unification tax "will only now enter the early
stage of planning" adding, "There could be different ways to secure finances, but
it's something that requires national consensus."
An official at the finance ministry said the unification tax "is such a grave and
critical issue that it's inappropriate for working-level officials to talk about
how it will be pursued."
Meanwhile, political parties remained divided over the taxation. GNP floor leader
Kim Moo-sung said Lee's idea "was a timely proposal ahead of the era of
unification."
"It's time to start considering the tax to prepare for unification, which will
eventually happen," Kim said. "Once the government plan is set, we will discuss
it with opposition parties."
The main opposition Democratic Party countered that Lee's words could actually
lead North Korea to believe Seoul is trying to "absorb" Pyongyang and that the
government would do well to first consider how to first improve inter-Korean
ties.
jeeho@yna.co.kr
(END)