South Korea’s tax revenue shortfall for 2023 is now estimated to stand at 59.1 trillion won ($44.6 billion), according to newly revised government data, the biggest in years.

The Ministry of Finance and Economy announced Monday it has revised down its annual tax revenue projection to 341.4 trillion won, citing sluggish corporate earnings and a protracted slump in the property market. The ministry’s earlier tax revenue outlook for this year was 400.5 trillion won.

The new revision reflects a sharp drop in tax collection in recent months. During the January-July period, the country’s tax revenue fell by 43.4 trillion won on-year to 217.6 trillion won. Considering the current tax revenue decline, the government is bound to face a deeper shortfall than expected.

Critics have repeatedly pointed out the government’s way of compiling tax revenue outlook data as a key reason for the mismatch between initial estimates and actual tax collection.

The Finance Ministry, however, defended its outlook, arguing that the drop in tax revenue is largely due to shifting economic factors. The ministry said in a release that the economic conditions at home and abroad worsened from the fourth quarter of last year through the first half of this year, resulting in lackluster earnings for the country’s major companies.

The slowdown of the global economy and the prolonged slump in the semiconductor industry -- one of the country’s key sectors -- resulted in lethargic exports. The trend dented the earnings of Korean chipmakers, which in turn culminated in a shortfall in corporate tax collected. The Finance Ministry said it now expects corporate tax for this year to stand at 79.6 trillion won, down from the previous 105 trillion won.

Another factor cited by the ministry is the contraction in the property market. During the January-July period, the number of homes traded went down 7.7 percent from a year earlier, reducing the amount of capital gains tax collected.

The ministry’s explanation may appeal to those who believe the government has few tools to reverse the broader economic trends, particularly exports closely linked to the global economy. But the real question is why the government’s projections keep missing its earlier estimates by such a wide margin.

This year’s tax revenue falls 14.9 percent short of previous estimates, marking a disconcerting trend of double-digit discrepancies for the third consecutive year. Notably, this year’s tax revenue miscalculation is in sharp contrast to the positive gap observed in 2021 and 2022, when the government collected far bigger taxes than earlier forecast, resulting in double-digit error rates.

The government has attributed the continued double-digit error rates over the past three years to the changes in economic conditions and greater uncertainty. But the government is ultimately responsible for inaccuracies in tax revenue projections. Instead of citing uncertainty in economic situations, the government is urged to overhaul its model for estimating tax revenues so that it can better reflect the evolving circumstances.

Instead of seeking an extra budget, the government said it would tap into available resources such as unallocated budgets to address the shortage in tax revenue. Particularly controversial is the government’s plan to utilize the foreign exchange equalization fund to make up for the tax revenue shortage. The fund is originally designed to stabilize the country’s foreign exchange market. Furthermore, if financial volatility shoots up and the Korean won suddenly gyrates due to rapid exchange rate fluctuation, the fund’s operation could hit a snag and trigger a chain of destabilizing effects in the broader financial market, experts warned.

Given the sizable impact of bigger tax revenue shortfalls on various projects of both central and local governments, the government must take measures to enhance accuracy of the annual tax revenue projections in a way that can restore the public trust about its forecast and stabilize the fiscal operations.