Trillions of won in tax revenue to be reduced this year as the government comes up with new tax cuts

Financial Services Commissioner Kim Joo-hyun delivers a post-meeting briefing on the financial sector during a public discussion with the public at the Government Complex in Jongno-gu, Seoul, South Korea, on Sunday. Yonhap

Trillions of won in tax revenue will be reduced this year, as the government officially announced its plan to abolish the financial investment income tax and cut the securities transaction tax at a public discussion on January 17. Even as major taxes, such as corporate tax and comprehensive real estate tax, are already expected to be less collected than the previous year, the government is pouring out new tax cut plans every day. Opposition parties criticize that the government's tax cuts are a political maneuver as the general election, which is set to take place in April, is approaching.

The government officially lowered the securities transaction tax following the abolition of the financial investment income tax in its "Financial Policy Plan for Win-Win Finance and Expansion of the Ladder of Opportunity." The financial investment income tax is based on a system that levies more than a certain amount of income earned from financial investment (50 million won in stocks and 2.5 million won in other stocks) at a rate of 20-25 percent.

The lowering of the securities transaction tax was made on the premise of the introduction of the financial investment income tax. The government expected to earn 1.5 trillion won per year from the new tax. With the new tax revenue, secured by the financial investment income tax, there is room for lowering the securities transaction tax. The National Assembly Budget Office forecasted that if the securities transaction tax is lowered to 0.15 percent by next year as planned by the government, it will reduce tax revenue by 10.15 trillion won over five years from 2023 to 2027, which is an average of about 2 trillion won per year. The introduction of the financial investment income tax and the reduction of the securities transaction tax was a "deal" that would reduce tax revenue by an average of 500 billion won per year. However, with the decision not to introduce the financial investment income tax, the reduction in tax revenue will increase to 2 trillion won.

The government argues that increasing incentives for stock investment by lowering taxes will increase transactions and increase tax revenues in the long run. However, experts pointed out that the net effect of tax cuts is vague and long-term, while the fiscal deterioration that will hit this year and next year is an immediate burden.

The government has come up with a series of tax cut plans based on the same logic. The government decided to raise the tax exemption limit for Individual Savings Account (ISA) for the purpose of encouraging individual financial investment. As a result, related tax revenues will be reduced by 200 billion won to 300 billion won this year alone.

According to President Yoon Suk-yeol on the previous day, it could reduce the government's revenues by up to 24.6 trillion won annually. The measures, which include easing the standards of transfer tax for major shareholders, expanding tax credits for companies' increased investment in research and development, and extending temporary investment tax credits, are also accompanied by a large reduction in tax revenues.

If the economy does not recover even if personal investment increases and corporate investment is revitalized as the government expects, it will lead to a financial burden, which will put significant pressure on the next administration. For example, the Lee Myung-bak administration implemented large-scale tax cuts, but the economy did not revive.

※This article has undergone review by a professional translator after being translated by an AI translation tool.