SEOUL—South Korea faces a dire economic warning, with its ratio of tax revenue to Gross Domestic Product (GDP) plummeting to 17.6% in 2024, ranking it 30th out of 38 OECD member nations. This figure is significantly lower than the 2023 OECD average of 25.9%, and even trails countries like the United States (19.1%) and Japan (21.2%).

The shocking results have triggered alarms from international organizations like the International Monetary Fund (IMF), which warns of a potential "low-tax, low-growth trap." International bodies, including the UN, recommend maintaining a tax revenue ratio of at least 15% for sustainable economic growth and effective policy implementation. The IMF specifically noted that countries exceeding the 15% threshold saw their per capita GDP grow about 10 percentage points faster than those below it.

The nation's tax revenue ratio has been unstable, reaching a high of 22.1% in 2022 before sharply dropping. Experts attribute the weak tax base to a system of "high statutory rates but a narrow tax base." For instance, the top income tax rate is the sixth-highest in the OECD, yet the effective tax rate ranks only 30th. This discrepancy is largely due to excessive income deductions, which result in 33% of wage earners paying no income tax at all. Furthermore, 54% of corporations are exempt from corporate tax, and the Value Added Tax (VAT) rate of 10% is far below the OECD average of 18%.

To address this, the IMF and domestic experts are urging the government to expand the tax base rather than simply raising already high statutory tax rates. Recommendations include rationalizing tax reduction and exemption schemes, raising the VAT, and reducing tax-free benefits. Experts emphasize establishing a tax policy that "broadens the tax base while lowering the tax rate" to secure the necessary funding for future welfare and growth initiatives.

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