Reduced local tax income raises concerns over Gyeonggi’s budget operation

Gyeonggi Provincial Government Northern Office in Uijeongbu [Courtesy of Gyeonggi Provincial Government]

The budget management of Gyeonggi Province in South Korea is facing a red light as the trend of declining local tax collection continues this year.

The ongoing decrease in acquisition taxes, which began in the second half of last year, is attributed to the sluggish recovery in the real estate market.

According to Gyeonggi Province on Tuesday, the tax revenue collected from January to May this year amounted to 5.79 trillion won ($4.59 billion), which is about 36.1 percent of the target collection amount for the year (16.02 trillion won). This figure falls about 10 percent below the target collection rate for the period. It is also 12.4 percent or 821.8 billion won lower than the tax revenue collected a year earlier.

For acquisition taxes, which account for more than half of the total local taxes, 3.22 trillion won was collected, reflecting a shortfall of 18.1 percent or 711.6 billion won from the previous year.

The revenue from local education taxes, which is linked to acquisition taxes, also fell by 8.5 percent (61.8 billion won). Additionally, the local consumption tax, which had seen an increase in the first quarter due to the recovery from the pandemic, fell by 4.0 percent (63.3 billion won) due to the impact of reduced value-added tax.

Although the number of apartment transactions grew nearly threefold (from 25,000 to 78,000 cases) in the first five months of this year compared to last year, the tax revenue has not recovered due to the decrease in actual transaction prices linked to acquisition taxes.

Moreover, the transaction volume of land and buildings (commercial buildings, factories, warehouses, and officetels), which account for 75 percent of the acquisition tax revenue, has plummeted. As a result, the province has been unable to allocate additional budget adjustments for the first half of the year and is currently reviewing the preparation of the first supplementary budget proposal in September.

To address the situation, the province has designated June to August as a special period for increased tax collection measures. It is actively pursuing revenue exploration through tax audits, collection of delinquent taxes, investigation of tax exemptions, and reporting with local governments.

If the decline in local tax revenue continues, it is expected to pose challenges to Governor Kim Dong-yeon’s livelihood policies, which aim to differentiate from the central government’s sound fiscal policy and promote active financial measures.