Hankyung Research Institute "This Year's Corporate Tax Revenue Estimated at 56.5 Trillion Won, Decreasing for the First Time in 6 Years"

Corporate Tax Budget Shortfall Expected at 7.9 Trillion Won
Tax Revenue Forecast Model Must Be Disclosed for Precise Measurement

Korea Economic Research Institute

[Asia Economy Reporter Dongwoo Lee] This year, corporate tax revenue is expected to decline for the first time in six years, raising red flags about the government's ability to support its expansionary fiscal policy with tax revenue, according to a recent study.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, announced on the 20th that an analysis of the 2020 corporate tax revenue estimates suggests this year's corporate tax revenue is projected at 56.5 trillion won, falling short by 12.3% compared to the government's budgeted amount of 64.4 trillion won. Based on the study, this implies a corporate tax revenue shortfall of approximately 7.9 trillion won.

While the government set this year's corporate tax budget 18.8% lower than last year, KERI anticipates that actual corporate tax revenue will be even lower due to deteriorating corporate performance and the impact of the COVID-19 pandemic.

KERI estimated the annual corporate tax revenue using the 'March corporate tax revenue,' which significantly influences total corporate tax income. The March corporate tax collection is based on the previous year's performance and accounts for 21-27% of the annual corporate tax revenue, serving as a key indicator for estimating total corporate tax revenue.

KERI calculated the annual corporate tax revenue by using the March 2020 corporate tax collection amount of 13.4 trillion won plus a deferred payment amount of 600 billion won, totaling 14 trillion won. If the estimated corporate tax revenue of 56.5 trillion won holds, it would mark the first decline in corporate tax collections in six years since 2014.

KERI explained, "The slowdown in exports and consumption caused by COVID-19 has led to poor corporate performance in the first half of the year, which will affect the August corporate tax prepayment and could reduce the annual corporate tax revenue more than previously predicted."

Korea Economic Research Institute

Meanwhile, looking at corporate tax revenue over the past decade, there has been a repeated pattern of 'tax revenue shortfalls' where collections fall below planned budgets and 'excess tax revenue' where collections exceed budgets. Notably, the margin of error in tax revenue has widened recently, reaching around ±10% since 2016.

KERI warned that in the rapidly changing global economic environment, accurately forecasting next year's corporate tax revenue is difficult, but excessive budget errors could disrupt fiscal execution. This makes planned economic responses challenging.

KERI argued that to improve the accuracy of revenue budget estimates, a tax revenue forecasting model should be disclosed to enhance verifiability. Verifiability would allow continuous adjustments of the revenue forecasting model to align with changing circumstances.

Choo Kwang-ho, Director of Economic Policy at KERI, stated, "Although government fiscal spending has increased due to supplementary budgets and COVID-19 responses, the revenue environment this year is unfavorable. Efficient management of limited fiscal resources, considering additional fiscal execution capacity, is necessary."

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