Korea to record large-scale tax revenue deficit for second consecutive year

Jeong Jeong-hoon, head of the tax office at the Ministry of Economy and Finance, speaks at a briefing on the results of the re-estimation of tax revenues on September 25. Courtesy of the Ministry of Economy and Finance

The government estimates that tax revenues will be collected about 30 trillion won less than expected this year. This is the second consecutive year of a large-scale “tax revenue puncture” following last year's record deficit. The government's stance is that it will respond to the shortfall with spare resources without a supplementary budget, but it is not easy to raise funds. Criticism of the government's economic optimism and large-scale tax cut policy is expected to grow.

According to the '2024 Tax Revenue Re-estimation Results' released by the Ministry of Economy and Finance on September 26, this year's national tax revenue is expected to be 337.7 trillion won, 29.6 trillion won (8.1 percent) less than the budget (367.3 trillion won). The margin of error is the second largest since the 2000s based on tax revenue deficits.

Last year, a tax revenue shortfall of 56.4 trillion won was recorded, the largest margin of error (16.4 percent). “We are sorry for the repeated errors in tax revenue estimates and feel a heavy sense of responsibility,” said Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, in a report on current issues at the National Assembly.

The main reason for the sharp decline in tax revenue is the deteriorating economy. Compared to the budget, 14.5 trillion won was collected less from corporate taxes as global trade contracted and the semiconductor industry slumped, halving the operating profits of listed companies last year from the previous year. Also, 8.4 trillion won was less collected from income taxes, and 5.8 trillion won was less collected from capital gains taxes due to a slowdown in the real estate market, including sluggish construction investment and fewer land transactions. Some 4 trillion won was collected less from comprehensive income taxes due to a slowdown in the domestic economy. In addition, 6 trillion won was less collected from transportation taxes and duties because of tax support measures, such as lower fuel tax rates and emergency quota tariffs.

With such a large tax revenue deficit, some government projects are expected to be disrupted. The government said it will make full use of fund surplus resources within the scope allowed by the National Finance Act to ensure that fiscal projects, such as those for stabilizing people’s livelihoods, can be executed without disruption.

Specific measures, such as the execution of local grant taxes and local education finance grants, will be prepared through consultations with relevant ministries. According to the law that requires 40 percent of national taxes to be transferred to local governments in the form of local grant taxes and local education finance grants, about 8.8 trillion won of the 22.1 trillion won shortfall in national taxes must be borne by local governments.

The government, however, drew a line that it would not draw up a supplementary budget to cope with the lack of tax revenues. Jeong Jeong-hoon, head of the tax office at the Ministry of Economy and Finance, said, "The formation of supplementary budgets is a means of supplementing for exceptional reasons such as an economic downturn."

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