Korea to extend expiring tax expenditures despite concerns of tax revenue drop

The South Korean government has decided to extend expiring tax expenditures, which would reduce tax revenue by nearly 14 trillion won ($10.9 billion). Despite the government’s intent to ease tax burdens on middle-to low-income households, critics said the decision will end up putting more pressure on the country’s already crunched fiscal conditions.

According to the Ministry of Economy and Finance on Sunday, of the 71 tax exemptions and cuts that are supposed to expire later this year, 65, or 91.5 percent, will be extended.

Out of the tax expenditures slated to end by the expiring deadline, only six were concluded as scheduled, accounting for a mere 8.5 percent. The number of terminating tax expenditures has been steadily decreasing, with 20.6 percent in 2019 and 10.5 percent in 2021 before a slight increase to 13.5 percent last year.

The reductions in tax revenue following the extensions are estimated to be at 13.6 trillion won, which accounts for 20 percent of the total reductions this year.

The most substantial tax cut is expected to come from the tax-free agricultural purchase tax credit, amounting to a projected 3.08 trillion won. There are other significant tax cuts, such as the reduction in transfer income tax for self-cultivated farmland, amounting to 2.36 trillion won, and the special exception for value-added tax credit for recycled waste materials, totaling 1.53 trillion won.

The government explained that the purpose of the extensions was to ease the growing tax burden on households with lower income levels amid harsh economic conditions. However, the country has already suffered from a lack of tax revenue. As of May this year, tax revenues have seen a significant decline of over 36 trillion won compared to the same period last year. The downward trend has led to a projection of at least 41 trillion won less in tax revenues by the end of the year.