[2021 Budget] Next Year's Tax Revenue Down 3.1%... Significant Corporate Tax Decline Due to COVID-19

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is reading the announcement at the detailed pre-briefing of the '2021 Budget Proposal' held at the Government Sejong Complex on the 27th of last month.

[Asia Economy Reporter Kwangho Lee] Due to the impact of the novel coronavirus infection (COVID-19), national tax revenue is expected to decrease next year as well as this year. In particular, corporate tax revenue is projected to fall by more than 11 trillion won compared to this year due to poor corporate performance, resulting in an overall decrease of more than 9 trillion won. Despite the decline in national tax revenue, the rate of tax reductions and exemptions is expected to exceed the legal limit for the third consecutive year following 2019 and 2020, as these exemptions and deductions increase.

According to the '2021 National Tax Revenue Budget Plan' announced by the government on the 1st, the scale of national tax revenue next year is estimated at 282.8 trillion won, a decrease of 9.2 trillion won (-3.1%) from this year's main budget of 292 trillion won. However, the government forecasts an increase to 296.5 trillion won in 2022, 310.1 trillion won in 2023, and 325 trillion won in 2024. Of the national tax revenue next year, the general account is projected at 274.1 trillion won, which is 10.0199 trillion won (-3.5%) less than this year's 284.1174 trillion won. The special account is expected to increase by 840.4 billion won (10.7%) to 8.7199 trillion won, up from this year's 7.8795 trillion won.

By tax category, corporate and self-employed business operators' operating profits are expected to significantly decline this year due to the COVID-19 impact, leading to a sharp decrease in corporate tax payments levied next year. Corporate tax next year is expected to be 53.3173 trillion won, down 11.1017 trillion won (-17.2%) from this year's 64.419 trillion won. Value-added tax (VAT) is predicted to be 66.6535 trillion won, a decrease of 2.2175 trillion won (-3.2%) from this year's 68.871 trillion won, as increased private consumption and imports are offset by higher refunds due to export growth. Individual consumption tax is also expected to decrease by 133.9 billion won (-1.2%) to 10.094 trillion won from this year's 10.2279 trillion won.

On the other hand, income tax is projected to increase by 1.3997 trillion won (1.6%) to 89.8175 trillion won from this year's 88.4178 trillion won. This figure reflects income growth due to economic improvement, an increase in the number of employed persons, and nominal wage rises.

Comprehensive real estate tax is expected to decrease by 929.5 billion won (-5.3%) to 16.9562 trillion won from this year's 17.4086 trillion won, while capital gains tax and earned income tax are forecast to increase by 123.6 billion won (0.7%) and 1.6919 trillion won (4.0%), respectively. Inheritance and gift tax is also expected to rise by 792.6 billion won (9.5%) to 9.0999 trillion won from this year's 8.3073 trillion won. Securities transaction tax is projected to increase by 701.3 billion won (16.0%) to 5.0861 trillion won from this year's 4.3848 trillion won.

The phenomenon of tax revenue failing to keep pace with expenditure expansion is expected to continue for the time being. The government has projected an average annual fiscal revenue growth rate of 3.5% from 2020 to 2024. However, the expenditure growth rate during the same period is estimated at 5.7%.

According to the 2021 tax expenditure budget released by the Ministry of Economy and Finance on the same day, the national tax reduction rate next year is expected to increase by 2.9 trillion won to 56.8 trillion won compared to this year. This is the largest scale ever recorded. The national tax reduction rate is expected to reach 15.9%, exceeding the legal limit of 14.5%. The government explained that the increase in the national tax reduction rate is due to various tax support measures to aid economic recovery following the COVID-19 pandemic. Tax support related to COVID-19 next year amounts to 1.8 trillion won, including temporary increases in credit card income deduction rates and limits (700 billion won), VAT reductions for small individual business owners (600 billion won), and tax reductions for small and medium-sized enterprises in infectious disease disaster areas (300 billion won).

Public tax burden is expected to increase. The tax burden ratio is projected to rise from 19.3% this year to 18.7% next year, 18.8% in 2022, 18.9% in 2023, and 19.0% in 2024. The tax burden ratio refers to the ratio of national and local tax revenue to the gross domestic product (GDP).

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