Reallocation of National Tax Resources among the Central and Local Government: With Special Emphasis on "Local Transfer Tax"

Abstract

Korea is ready to introduce local autonomy as a result of political compromise between the ruling and opposition party. With the introduction of local autonomy in Korea, changes in the local financial system are expected. For example, the local government is expected to raise its own tax efforts as well as share more portion of total internal tax revenue. Therefore, the redesign of local tax system with additional transfer of the national tax base to the local government is one of the major tax policy issues in Korea. For strengthening local tax capability, the central government has transferred most of tobacco profits of the public enterprise to local government in a form of Tobacco Consumption Tax. In spite of the introduction of Tobacco Consumption Tax to local tax system which contributes to improvement of financial situation of local government, other national taxes (example, Telephone Tax, Inheritance Tax, Liquor Tax) are also under consideration, as adequate targets for local transfer.