South Korea’s national tax revenue falls $31 bn in H1

South Korea’s national tax revenue in the first half declined by nearly 40 trillion won ($31.29 billion) compared to the first half of last year due to a drop in mainly lower corporate revenues as major conglomerates performed poorly.

The reduction in real estate transactions also contributed to lower capital gains tax collections. The national tax revenue collected in the first half of the year fell short of half of the annual target.

The Ministry of Economy and Finance said on Monday that national tax revenue from January to June this year amounted to 178.5 trillion won, a decrease of 39.7 trillion won from the same period a year earlier. The decline is the largest on record for the first half of the year. As a result, the progress rate of national tax revenue against the budget in June reached only 44.6 percent, marking the lowest level since 2000. This means that national taxes collected until June this year significantly fell short of 50 percent of the annual target. In particular, the progress rate in June was 10.5 percentage points lower than the year-ago progress rate of 55.1 percent and 8.6 percentage points lower than the five-year average progress rate of 53.2 percent.

The decline in income tax revenue was a major contributor to the shrinking national tax revenue. In the first half of this year, income tax totaled 57.9 trillion won, down 11.6 trillion won from the first half of last year. Of the total, the decrease in capital gains tax accounted for 9.9 trillion won, or 85.3 percent, of the total decrease. In June alone, the capital gains tax revenue dropped significantly. While 1.9 trillion won in capital gains tax was collected in June last year, it only amounted to 900 billion won in June this year, resulting in a decrease of 1 trillion won in tax revenue.

The decrease in corporate tax revenue also had a significant impact on the decline in national tax revenue. In the first half of this year, corporate tax revenue amounted to 46.7 trillion won, a decrease of 16.8 trillion won compared to the previous year. This was due to a decline in corporate operating profits and a large amount of taxes paid in advance during last year’s interim tax payment.

However, the decline in corporate tax revenue until June this year was slightly smaller than the cumulative decrease up to the previous month of 17.3 trillion won. This was due to an increase in the withholding tax amount for corporate tax in June, the ministry said.

Value-added tax revenue for the first half of this year also declined by 4.5 trillion won compared to the previous year, amounting to 35.7 trillion won. This can be attributed to the base effect from fiscal support and the decrease in income. Transportation, energy, and environmental tax revenue amounted to 5.3 trillion won, down 7 billion won from the first half of last year, which was a result of measures such as a temporary reduction in fuel taxes.

Comprehensive real estate tax revenue in June amounted to 1.4 trillion won, 200 billion won less than a year earlier. Customs revenue fell by 400 billion won to 500 billion won due to a decline in imports. “The challenging economic situation in the first half of the year has continued to affect tax revenue until June,” said Jeong Chung-hoon, the head of the tax policy office at the ministry. “Interim corporate tax payments, the real estate and stock markets, and import and export trends will be key variables going forward.”