This Year’s Tax Revenue Pessimism... Corporate Earnings Expected to Worsen Due to New Coronavirus Spread

[Asia Economy Reporter Kwangho Lee] Following a tax revenue shortfall recorded last year for the first time in five years, pessimism is emerging that this year’s tax revenue situation will be even worse. This is due to the anticipated deterioration of corporate earnings caused by the spread of the novel coronavirus infection (Wuhan pneumonia) and the presence of numerous negative factors affecting tax revenue, such as the disruption of real estate transactions.

According to the Ministry of Economy and Finance on the 10th, total national tax revenue this year is expected to be 293.5 trillion won, a decrease of 100 billion won compared to the previous year. Compared to the revenue budget (294.8 trillion won), it is 1.3 trillion won less. The margin of error (0.5%) is the lowest in 17 years since 2002 (0.3%).

The general consensus is that the biggest variable affecting this year’s tax revenue is corporate tax. Corporate tax accounts for more than 20% of total tax revenue. The government’s confirmed target for corporate tax revenue this year is 64.4 trillion won. The National Assembly Budget Office forecasted that 64.3 trillion won will be collected. It is expected to decrease by 8.7 trillion won (-11.9%) compared to the previous year due to poor corporate operating performance this year. Additionally, the value-added tax forecast is 67.7 trillion won, which despite increases in private consumption and improvements in customs import amounts, is predicted to decrease by 1.9 trillion won (-2.7%) compared to the previous year due to changes in transfer amounts (-5.1 trillion won) caused by the increase in the local consumption tax transfer rate (from 15% to 21%).

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said at a meeting with reporters on the 3rd, “We need to observe the economic impact of the novel coronavirus, but if economic difficulties persist, it could also affect the tax revenue situation.” This means that if domestic demand worsens due to the spread of the novel coronavirus, tax revenue may be collected less than expected. Deputy Prime Minister Hong emphasized, “Although the revenue environment is by no means easy, we will strive to ensure that at least the budgeted tax revenue is stably secured.”

For the same reasons, the National Tax Service has set “stable tax revenue procurement” as the top priority task for this year. According to the “2020 National Tax Administration Operation Plan” announced at the nationwide tax office chiefs meeting on the 29th of last month, the first of the seven key detailed tasks is “supporting a strong national finance through stable revenue budget procurement.” The National Tax Service noted, “Although growth improvement is expected thanks to the recovery of the main manufacturing industry conditions, uncertainties such as the direction of the US-China trade negotiations remain, making the revenue environment challenging.”

The National Tax Service has already strengthened collection activities by launching a dedicated delinquent tax collection organization, including the full operation of the delinquent tax collection division at frontline tax offices through organizational restructuring. They are also advancing the tax compliance analysis system to precisely select taxpayers with high suspicion of tax evasion as investigation targets.

Professor Yoon Chang-hyun of the Department of Business Administration at Seoul City University advised, “In a situation where manufacturing industry stagnation continues and tax revenue conditions have worsened further due to the novel coronavirus, extraordinary measures to activate investment must be prepared.”

Meanwhile, last year’s execution performance of managed projects was 301.6 trillion won (103.3%), exceeding the annual plan (291.9 trillion won) by 9.7 trillion won. This is the highest since 2006 (105.1%). As the pace of fiscal execution accelerates, the fiscal balance is rapidly deteriorating. The integrated fiscal balance, which is total revenue minus total expenditure from January to November last year, recorded a deficit of 7.9 trillion won. This is the largest since 2009 (-10.1 trillion won). The cumulative managed fiscal balance showed a deficit of 45.6 trillion won, the largest since related statistics were first published in 2011. During the same period, central government national debt also increased to 704.5 trillion won. The fiscal balance and national debt performance figures as of the end of December last year will be disclosed in the national settlement announcement scheduled for April after fund settlement aggregation and analysis.

This content was produced with the assistance of AI translation services.