With Corporate Tax Revenue Decline Expected... Even KDI Finally Considers Tax Increase Option

Government Official: "Social Consensus Must Come First"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Amid projections of a corporate tax revenue shortfall due to the novel coronavirus disease (COVID-19) crisis, the Korea Development Institute (KDI) has advised that discussions on tax increases should begin. This analysis takes into account not only COVID-19 but also the increased social welfare expenditures.

On the 20th, KDI released its "2020 Mid-Year Economic Outlook," recommending the initiation of tax increase discussions. Jeong Gyu-cheol, head of KDI's Economic Outlook Office, stated, "A tax increase is necessary in the medium to long term," adding, "Although it is difficult at the moment, it is time to start the discussions."

This is due to the expectation that corporate tax revenue will decline for the first time in six years this year, coupled with a massive tax revenue shortfall caused by the economic shock from COVID-19.

In fact, on the same day, the Korea Economic Research Institute forecasted corporate tax revenue at 56.5 trillion won this year, which is 12.3% below the government's budgeted amount of 64.4 trillion won. According to the Korea Economic Research Institute's analysis, the corporate tax revenue shortfall alone would reach 7.9 trillion won this year.

Another reason is the significant increase in fiscal expenditures due to welfare spending. A government official stated, "The proportion of welfare in the overall budget is gradually increasing," adding, "As welfare spending rises in response to COVID-19, fiscal expenditures are also increasing."

In response, a government official expressed a cautious stance, saying, "The issue of tax increases requires social consensus first," and noted, "There may also be choices between budget support and tax reduction policies."

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