Next Year's National Tax Reduction Amount 59.5 Trillion Won... More Than Half 'Cannot Be Abolished'

2022 Tax Expenditure Budget Report

[Sejong=Asia Economy Reporter Son Sun-hee] Next year, the amount of national tax reductions is expected to approach 60 trillion won, with more than half of this amount identified as tax expenditures that are unlikely to be abolished.

According to the '2022 Tax Expenditure Budget' recently submitted by the Ministry of Economy and Finance to the National Assembly on the 13th, 32.3836 trillion won, equivalent to 54.4% of next year's national tax reduction amount (59.5208 trillion won), was found to be tax expenditures that are practically impossible to restructure. Tax expenditures refer to reductions in national taxes through tax exemptions, non-taxation, income deductions, tax credits, preferential tax rates, and tax deferrals, among others, and more than half of these have become 'fixed expenditures' that are difficult to manage. This is the largest scale since the classification of tax expenditures by management target type began in 2014.

Structural expenditures that are difficult to reorganize due to the absence of specificity, substitutability, and abolishability were calculated at 12.8985 trillion won. Similarly, potential management target expenditures, which are difficult to actively manage due to the lack of abolishability and one of either specificity or substitutability, amounted to 19.4851 trillion won.

If tax expenditures corresponding to 'fixed expenditures' increase like this, there is a concern that the revenue base may weaken. However, despite the increase in tax expenditure amounts, national tax revenue next year is also expected to increase simultaneously, so the national tax reduction rate is projected to be 14.2%, a 0.1 percentage point decrease from this year (14.3%).

The item with the largest tax expenditure next year is 'Special Income Deduction and Special Tax Credit for Insurance Premiums,' with a projected tax reduction of 5.1317 trillion won. This is followed by Earned Income Tax Credit at 4.8718 trillion won, Pension Insurance Premium Deduction at 3.7547 trillion won, Tax Credit for Research Personnel Development Expenses at 3.5107 trillion won, and Income Deduction for Credit Card and Other Usage Amounts at 3.2017 trillion won.

The item with the largest increase in tax reduction amount is the strengthened tax support for research and development (R&D) and facility investment in national strategic technologies, which is expected to increase by 1.2603 trillion won (31% increase) from this year to 5.3259 trillion won next year.

By tax type, income tax reductions accounted for the largest share at 36.1244 trillion won (60.7%). Corporate tax reductions are also expected to exceed 10 trillion won for the first time next year, reaching 10.2989 trillion won (17.3%).

The beneficiaries of tax expenditures are expected to increase among high-income earners and large corporations. Among individual tax expenditures next year, the proportion of expenditures benefiting high-income earners (12.0262 trillion won) will rise by 0.8 percentage points to 32.0% compared to this year (31.2%). Corporate tax expenditures are also expected to see an increase in the benefit proportion for large corporations subject to mutual investment restrictions, rising by 1.3 percentage points to 13.6% from this year (12.3%).

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