Fiscal Reliance on Asset Markets... Concerns Over Tax Revenue Shortfall This Year

Last Year’s National Tax Revenue Decreased by 7.9 Trillion Won... Decline for Two Consecutive Years
Corporate Tax Shortfall Covered by Irregular Tax Payments from Asset Owners

[Sejong=Asia Economy Reporters Kim Hyunjung and Jang Sehee] Last year, South Korea's national tax revenue decreased by about 8 trillion won, but thanks to the 'irregular' tax revenue paid by asset owners, the deficit was avoided. Taxes such as securities transaction tax and capital gains tax, which are greatly influenced by market conditions, increased, and the taxes paid by asset owners during real estate and stock transactions and gifts helped reduce the shortfall. However, this year, it is difficult to expect the same level of asset market expansion as last year, raising concerns about worsening revenue conditions.

According to the '2020 Fiscal Year Total Revenue and Total Expenditure Closing Results' announced by the Ministry of Economy and Finance on the 9th, last year's national tax revenue was 285.5 trillion won, down 7.9 trillion won (-2.7%) from 293.4 trillion won in 2019. This marks the first time in history that revenue has declined for two consecutive years, following 2019 (-116.1 billion won). In terms of the scale of revenue decline, it is the second largest since the IMF financial crisis (1998, -3.0%).

However, the government's revenue forecast (279.7123 trillion won) was exceeded by 5.8339 trillion won (2.1%), avoiding a deficit. Including non-tax revenue, total revenue (465.5 trillion won) minus total expenditure (453.8 trillion won) and carryover amount (2.3 trillion won) resulted in a global surplus of 9.4 trillion won, marking six consecutive years of surplus.

Despite worsening revenue conditions due to the prolonged COVID-19 pandemic, the presence of 'asset owners' was a key factor in achieving a surplus without a large deficit. Looking at major tax items, corporate tax revenue fell sharply by 16.7 trillion won (23.1%) to 55.1232 trillion won due to poor performance of corporations compared to the previous year. On the other hand, capital gains tax (7.5547 trillion won, 46.9%), securities transaction tax (4.2854 trillion won, 95.8%), and inheritance and gift tax (2.0462 trillion won, 24.6%) increased compared to 2019 as asset prices and transaction volumes in real estate and stocks surged.

Last year, the boom in the asset market helped sustain revenue, but the outlook for this year is different. Corporate tax revenue is unlikely to rebound significantly due to the prolonged impact of COVID-19, except for some companies. Moreover, corporate performance in the second half of last year, affected by the prolonged COVID-19 situation, will be reflected in this year's corporate tax revenue. For some tax items relying on the asset market, it will be difficult to reach last year's levels due to strengthened real estate-related tax policies, loan regulations, and announcements of large-scale supply plans. The stock market's continued boom is also uncertain.

It is also concerning that our fiscal system relies on irregular tax revenues such as capital gains tax, securities transaction tax, and gift tax, which fluctuate depending on market conditions, rather than on core tax items like corporate tax, earned income tax, and value-added tax. Professor Hong Woo-hyung of Hansung University's Department of Economics pointed out, "Most of the tax items that increased last year were related to capital gains, gifts, and transactions, which are due to rising asset prices," adding, "In a situation where core tax items are important, we should not rely on temporarily fluctuating irregular tax revenues."

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