Tax Needed for Korean Unification

August 16, 2010 Taxation in North KoreaTaxation in South Korea

Dancing Girls of the NorthA new tax could be instated in South Korea to pay for the potentially exuberant costs of one day reunifying the country with its Northern counterpart.

In a speech commemorating the 65th anniversary of Korea’s liberation from Japanese occupation, Lee Myung-bak, President of South Korea, restated that reunification between North and South Korea will definitely come between. However, the process could cost as much as USD 1 000 billion, and fiscal steps need to be taken now to ensure its future economic viability. Lee Myung-bak has proposed that a new “unification tax” be levied to cover the expected costs. The President stated that a panel of experts will soon begin discussions on the nature of the “unification” levy, its rate, and the tax’s balance between the two nations. Political experts predict that the proposal will initially be met with scorn from North Korea, based on previous discussions on unification or regime change.

The tax proposal has re-sparked debate over the potential benefits of unifying North and South Korea. Economic analysts have predicted that the large costs associated with uniting the two countries will be offset by the inherent potential of North Korea’s economy and relatively low wages. However, some other economists are arguing that the single Korean nation concept should be postponed, in favor of turning North Korea into a semi-autonomous investment enclave.

In his speech Lee Myung-bak also outlined his vision for the reunification process. Initially, North Korea would need to dismantle its nuclear arsenal, a step labeled as creating the “peace community”. The President has already offered Pyongyang USD 40 billion in infrastructure aid and economic incentives completion of the disarmament. Next, the two nations should work towards increasing economic ties and integrating their financial systems, creating an “economic community”. Eventually it will be possible for the two countries to unite in a “community of the Korean nation”.

Photo by leef_smith