Korea’s tax revenue projection is off target again in 2025

South Korea is expected to see its tax revenue fall significantly short again in 2025, with shortfalls over the past three years nearing 100 trillion won ($70.97 billion).

According to the “2025 National Tax Revenue Recalculation Results” released by the Ministry of Economy and Finance on Thursday, the national tax revenue for the year is projected to reach 369.9 trillion won. The figure is 12.5 trillion won less than the 382.4 trillion won originally estimated in the main budget bill passed by the National Assembly in 2024.

This is the third consecutive year of tax revenue shortfalls, with the cumulative shortfall over the past two years totaling 87.2 trillion won, including 56.4 trillion won in 2023 and 30.8 trillion won in 2024. Adding the projected 12.5 trillion won shortfall for 2025, this brings the total to 99.7 trillion won and nearer the 100-trillion-won mark.

The problem is that even though the government had already factored in a 10.3 trillion won shortfall in its second supplementary budget compiled shortly after the inauguration of the Lee Jae-myung administration, the deficit widened to 12.5 trillion won in just three months. This means an additional 2.2 trillion won shortfall emerged within three months, largely due to the impact of value-added tax and customs duties.

The corporate tax shortfall is also substantial. The government initially projected 88.3 trillion won in corporate tax revenue for 2025 but revised this down to 83.6 trillion won during the second supplementary budget, reflecting a shortfall of 4.7 trillion won.

In response, the finance ministry plans to revise the National Finance Act to make it mandatory to recalculate annual tax revenue forecasts every September. But many experts point out that future tax revenue forecasts will likely remain inaccurate unless the country reduces its reliance on corporate tax - which is highly volatile depending on economic conditions.