Tax Revenue Plummets by 30 Trillion: A Devastating Two-Year Streak Hits New Lows

Tax revenue re-estimate announcement
Expected deficit of 29.6 trillion won compared to revenue budget
Detailed financial resources ‘question mark’

It is predicted that a large-scale tax revenue deficit of approximately 30 trillion won will materialize this year. This is a large-scale ‘tax revenue puncture’ for the second consecutive year, following last year when a deficit of 56.4 trillion won, the largest ever, occurred. The government’s position is that it will respond with available resources without any additional revenue budget, but it does not seem easy to secure sufficient financial resources.

The Ministry of Strategy and Finance announced the results of tax revenue re-estimates on the 26th. This year’s national tax revenue is expected to be 337.7 trillion won, which is 29.6 trillion won (8.1%) short of the tax revenue budget (367.3 trillion won). This figure is 6.4 trillion won lower than last year’s national tax revenue (344.1 trillion won), which resulted in a record-breaking tax revenue deficit. It is also unusual to officially announce tax revenue estimates for two consecutive years. This is proof that the tax revenue deficit for the second year is serious.

The Ministry of Strategy and Finance explained, “Last year, the decline in corporate tax was larger than initially expected due to the decline in global trade and the slump in the semiconductor industry.” This means that the shock wave from last year’s poor performance is being reflected in this year’s national tax revenue due to the time difference between corporate profits and tax revenues.

The corporate tax loss was expected to be 14.5 trillion won, accounting for half of the total. Due to the sluggish asset market, it was estimated that capital gains tax would be collected 5.8 trillion won less than the original target. Although some tax rate adjustments were made, a negative figure of 4.1 trillion won was also expected in transportation, energy, and environmental taxes due to continued fuel tax cuts.

In addition, there will be a loss of 4 trillion won in comprehensive income tax, 1.9 trillion won in customs duties, 1.2 trillion won in individual consumption tax, and 500 billion won in inheritance and gift taxes.

Among major taxes, value-added tax is expected to record a positive figure of 2.3 trillion won.

The government’s position is that there will be no supplementary budget for revenue despite large-scale deficits. This is because it does not meet the reasons for the supplementary budget under the National Finance Act, which are defined as economic recession and mass unemployment, and increasing the issuance of government bonds for supplementary revenue will increase the burden on future generations and reduce external credibility.

The key is financial resources. The government’s policy is to make up for the shortfall by mobilizing extra money from the fund and not spending money on projects that are difficult to execute within the year (disuse), but some point out that the deficit is too large to respond only with funds and disuse cards.

Although it is flexible depending on the time of settlement, local transfer resources are also mechanically reduced and adjusted. According to related laws, approximately 40% of domestic taxes are transferred to local allocation taxes and local education financial grants. In other words, based on a tax revenue deficit of 30 trillion won, local transfer resources of about 12 trillion won will automatically be reduced.

The Ministry of Strategy and Finance said, “We will respond by making the best use of the fund’s available resources and considering projects that will inevitably be difficult to execute within the year,” but did not reveal detailed figures such as the size of the fund’s available resources and the amount to be adjusted for reductions in local resources, saying, “We will consult with the National Assembly.”

Reporter Kim Kyung-ho stillcut@segye.com

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