Korea's tax revenue could fall short next year as govt bases relative upbeat data

South Korean government could fall short of tax revenue target next year as it has based economic forecasts more sanguine than what the central bank and most institutions project amid deteriorating trade from strong commodity import prices and slowed global demand.

According to the 2023 tax income budget estimate analysis the Ministry of Economy and Finance submitted to the National Assembly for budgetary review, the government projected Korea’s real gross domestic product (GDP) to expand 2.6 percent this year and 2.5 percent next year.’

It estimated consumer price index (CPI) to add 4.7 percent this year and 3.0 percent next year. Exports were projected to increase 11 percent this year and 1 percent in 2023, while imports would fall 1 percent after 18 percent gain this year.

The dollar was projected to average 1,285 won this year and 1,290 won next year.

The government has been submitting forecast on tax revenue on data projections for the following year since 2019.

Based on the macro indicators, the government estimated tax revenue at 400.46 trillion won ($288.8 billion) for next year, up 0.8 percent from this year’s estimate of 397.09 trillion won.

The government kept income growth conservative on expectations that the economy at home and abroad will slow from this year. It projected income tax at 131.86 trillion won for next year, up 3.0 percent from this year’s projection, and value-added tax at 83.2 trillion won, up 3.6 percent. It expected revenue from corporate taxes to decline 0.1 percent from this year to 105 trillion won next year.

Although the government’s estimates claim to be based on conservative indices, they pose sanguine compared to forecasts by most institutions including the central bank.

The Bank of Korea (BOK) revised down growth rate to 2.6 percent for this year and 2.1 percent for 2023. The International Monetary Fund (IMF) in July downgraded Korea’s growth rate to 2.3 percent for this year and 2.1 percent for next year.

The BOK estimated annual inflation at 5.2 percent for this year and 3.7 percent for next year. The Organization for Economic Cooperation and Development (OECD)’s June projection for Korea’s inflation rate is 4.8 percent for this year and 3.8 percent for 2023.

The Korean won weakening accelerated over the last week, passing 1,360 and 1,370 to dip below 1,380 against the dollar Wednesday.

Given the pace, the dollar could go as high as 1,400 won, analysts have warned.

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