View of Seoul from Namsan on Aug. 31. The Finance Ministry is expected to release an update on the estimated tax revenue this week.(Yonhap)
South Korea’s tax revenue for this year is likely to fall below the initial estimate by around 60 trillion won ($44 billion) to hover at about 340 trillion won, as major revenue sources such as corporate tax and capital gain tax remain sluggish due to the slow economy.
The Finance Ministry is expected to release an update on the estimated tax revenue this week, including corporate taxes prepaid until August.
The upcoming announcement comes as the country’s tax revenue has been falling short largely this year. The government normally does not share an update on the tax estimates unless drawing up a supplementary budget.
Korea’s tax revenue in the first seven months of this year was 217.6 trillion won, down 43.4 trillion won from the same period last year.
The low tax income stems from the weakened economy. Korea is largely dependent on corporate taxes, which take up an average of 22 percent of the total national tax income since 2020.
For instance, Korea’s tech giant Samsung Electronics paid 241.2 billion won in corporate taxes in the first half of 2023. This marks a 97 percent decline from the 7.1 trillion won in the same period of 2022, as the firm’s earnings dipped due to the slump in the chip industry.
If the weakened tax revenue persists, the yearly tax income of Korea will stand at around 340 trillion won, marking a nearly 60 trillion won drop from the initial estimate of 400.5 trillion won. This is lower than the tax income of 344.1 trillion won seen in 2021.
Despite the looming decline in this year's tax income, the government has been ruling out the chance of planning a supplementary budget, stressing the importance of “sound fiscal management.”
Prime Minister Han Duck-soo said an extra budget will "overwhelm the burden on future generations" at the National Assembly on Sept. 7.
Instead, it is likely to use some of the foreign exchange stabilization fund bonds to make up for the deficit. The government has not yet confirmed how it will cover up for the shorter-than-expected tax revenue.
The ministry still remains optimistic with future tax income projections, expecting the country’s tax income to rebound after further plunging next year as the economy recovers.
“The national tax revenue is likely to recover after 2024 as the economy picks up,” the Finance Ministry said in a report submitted to the National Assembly earlier this month. “The inflation will wane out and the global economy will recover, positively affecting the Korean economy.”
The ministry views next year's tax income to stand at 367.4 trillion won. Though the figure is lower than the 400.5 trillion won initially estimated for this year, it is 27 trillion won higher than the worsened projection of 340 trillion won.
The government expects the figure to increase by 20 to 30 trillion won every year, making the income recover to 401.3 trillion won in 2025, 423.2 trillion won in 2026, and 444.9 trillion won in 2027.
The lower-than-expected tax revenue also shows the need for the government to improve its tax income projection model.
If the tax income for 2023 drops by 60 trillion won from the initially projected figure, the difference will stand at 15 percent. It will be the first time for the disparity to surpass 10 percent for three consecutive years since the 1988-1990 period.
The differences between the projection and actual income in 2021 and 2022 stood at 17.8 percent and 13.3 percent, respectively. In these two years, Korea posted a larger-than-expected surplus in tax revenue, due to increased real estate tax and corporate tax revenue.
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