Basic Report

This report suggests policy implications on how to reform local tax policies inresponse to changing economic circumstances. Under this topic, 4 chapters will bepresented as; ‘Reform of the Local Motor Fuel Tax’, ‘Conversion of EnvironmentalCharges into Local Environmental Tax’, ‘Reform of the Tobacco Consumption Tax’,and ‘Reform of the License Tax’.‘Reform of the Local Motor Fuel Tax’‘The Transportation Energy Environment Tax(TEE)’, which is the transportationtax of Korea, is a sunset tax being converted to individual consumption tax at the endof 2012. Since the local motor fuel tax is a surtax of the TEE tax, a strategicplanning for local motor fuel tax policy is required in preparation of environmentfriendly tax reforms and the conversion of the TEE tax to the individual consumptiontax. The operation of local motor fuel tax deviated from its initial policy goal toreplenish the tax revenue losses of local governments from reduced vehicle relatedlocal tax revenues, due to the limited use of the local motor fuel tax revenue beingused to subsidize fuel taxes for the transportation industry. Therefore, this studysuggests the following changes in the local motor fuel tax. In the short run, the fixedamount compensation for the motor vehicle related taxes cuts should be increased as apercentage of the motor vehicle tax revenue and the fuel tax subsidy should befinanced by the central government subsidy, instead by the local motor fuel taxrevenue. In the long run, the local motor fuel tax must be converted from a surtax oftransportation tax to an independent local energy tax. ‘Conversion of Environmental Charges into Local Environmental Tax’This study examines how to spinoff a set of environmental charges to local tax,out of the total of 22. The selection criteria of the environmental charges candidatesto be converted to local tax were based on the locality and revenue sufficiency. Thisstudy concludes that the conversion of environmental charges to local tax should bedone by extending the tax subjects of the existing Regional Resource & Facility Taxrather than implementing a new tax. In particular, this study suggested to empowerarticles of the regional resources & facilities tax to tax on general air pollutionemissions, excluding CO2 emissions due to considerations on the possible introductionof Carbon Tax in the future.‘Reform of the License Tax’This study examines whether the license tax is eligible for local tax in emphasisto its characteristics as a legitimate local government revenue source. Case studies ofoversea license tax policies suggest implications on reforming the Korean license taxsystem. Surveys conducted to local government officials in charge of license taxsuggest that the current problems of the license tax are ‘poor function as a revenuesource’, ‘administrative inefficiencies in periodical tax imposition’, ‘high taxadministration cost due to various tax rates by business size’, and ‘the complexity intax object classifications’. This study recommended followings. First, unify the licensetax rates among cities(shi) and counties(gun). Second, merge type 3 and 4 in 'the taxrate differences by business sizes'. Forth, merge type 2 with 3, and type 4 with 5 in‘the tax rates differences by license type classifications’.