Gyeonggi governor calls for overhaul of local tax system to address fiscal crisis

Gyeonggi Gov. Choo Mi-ae argued that the province's fiscal crisis stems from outdated local tax policies and called for sweeping reform on Thursday.

"Gyeonggi's fiscal crisis is the result of an outdated local tax system," Choo wrote in a Facebook post. "It is time to overhaul it."

She added that people should not turn the province's fiscal emergency declaration, announced a day earlier, into a political dispute.

Choo argued that the current tax structure disproportionately benefits Seoul.

"Seoul, which has almost no manufacturing facilities, collects the largest share of its local tax revenue from the local corporate income tax," the governor wrote. "On the other hand, Gyeonggi, despite being home to factories, industrial complexes, workers and research facilities, does not receive a single won from the local corporate income tax because it is not a provincial tax. That is the difference between Seoul and Gyeonggi."

The governor also pointed out that the region has sacrificed too long for too little.

“Gyeonggi bears the cost of supporting industry by investing in land, roads, railways and water and electricity infrastructure, but does not receive tax revenue from the businesses operating here,” Choo said. "This system, in which local governments shoulder enormous costs to support industry but do not receive the tax revenue generated by it, must change.”

Choo also argued that the province relies heavily on real estate acquisition tax.

"Real estate acquisition tax has long been Gyeonggi's No. 1 source of tax revenue," Choo wrote. "That was enough during the era of rapid development. But that era has ended, and acquisition tax revenue is declining."

Choo argued that the province's revenue structure is no longer sustainable.

"We estimate that acquisition tax revenue will fall by 65 percent next year," Choo added. "Our industrial structure has changed completely, but our tax system remains stuck in the past."

Choo also ordered the immediate formation of a task force dedicated to a fiscal crisis response led by Joo Hyung-chul, Gyeonggi’s newly appointed deputy governor for economy.

The task force, which will include officials from relevant government departments and outside experts, is expected to complete its work by the end of August.

The team will develop a comprehensive response that includes a detailed assessment of the province's fiscal condition, identification of the root causes of the crisis, major spending cuts and mid- to long-term measures to increase tax revenue through institutional reform.

BY KIM EUN-BIN [lee.jiwon10@joongang.co.kr]