"This Year's Tax Revenue Shortfall Could Reach Up to 20 Trillion Won"…Possibility of Supplementary Budget Approaching 10 Trillion Won

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is delivering a speech at the 2nd Emergency Economic Central Disaster and Safety Countermeasures Headquarters meeting held at the Government Seoul Office in Jongno-gu, Seoul, on the 7th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jang Sehee] There is a forecast that this year's national tax revenue could fall short by up to around 20 trillion won compared to the government's estimate. The scale of the supplementary budget (to cover the expected tax revenue shortfall) is expected to approach the 10 trillion won level.

On the 10th, Choo Kyung-ho, a member of the Future United Party on the National Assembly's Planning and Finance Committee, estimated this year's national tax revenue based on the recent years' March progress rate of national tax revenue (the ratio of national tax revenue from January to March to the total national tax revenue settlement for the year). The result showed that this year's national tax revenue is expected to be 22 to 30 trillion won less than the budget (291.2 trillion won). According to Rep. Choo, calculating the 'progress rate against actual performance' monthly for the past four years since 2016 shows that it has remained almost at the same level throughout the four years. The national tax revenue progress rates for January to March were 26.4% in 2016, 26.3% in 2017, 26.8% in 2018, and 26.6% in 2019.

Using three different progress rates for January to March ? ▲26.58% for 2019 ▲26.59% average for the recent 3 years (2017?2019) ▲25.84% average for the recent 5 years (2015?2019) ? and applying these to this year's January to March national tax revenue (69.5 trillion won), the annual national tax revenue forecast for this year is calculated as 261.5 trillion won, 261.4 trillion won, and 269 trillion won, respectively. These amounts are 29.7 trillion won, 29.8 trillion won, and 22.2 trillion won less than this year's national tax revenue budget, indicating a tax revenue shortfall of 22 to 30 trillion won, according to Rep. Choo's projection.

The national tax revenue performance in the first quarter decreased by as much as 8.5 trillion won compared to the same period last year. This means the actual tax revenue decline is much faster than the budget anticipated. The biggest factor affecting the first quarter tax revenue decline was corporate tax, which decreased by 6.8 trillion won compared to the same period last year. Although the corporate tax budget for this year is 7.8 trillion won less than last year's actual performance (64.4 trillion won) due to last year's semiconductor market downturn, the decrease is approaching 7 trillion won even at a point when the economic downturn caused by the COVID-19 shock has hardly been reflected yet.

The tax revenue decrease due to the corporate tax deferral measures for COVID-19 affected industries and regional companies in March was found to be not significant. It is forecasted that from April, when the impact of COVID-19 will be fully reflected, there is little room for improvement in overall national tax revenue, including the three major tax items: corporate tax, income tax, and value-added tax.

Furthermore, the tax revenue decline is expected to be larger due to various tax benefits the government is promoting. The government has announced measures such as reducing value-added tax for small individual business owners, tax credits for benevolent landlords, income and corporate tax reductions for small and medium enterprises located in the special disaster areas of Daegu and Gyeongbuk, expanding the income deduction rate for credit card usage to 80%, and a 1% tax credit on income and corporate tax for advance payments by small business owners.

Accordingly, as the government plans to include supplementary budget adjustments (to cover expected tax revenue shortfalls) when preparing the third supplementary budget bill early next month, there are expectations that the scale of the supplementary budget adjustments will reach at least around 10 trillion won.

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