Did Not Expect House Prices to Rise This Much... Last Year's 60 Trillion Won Tax Revenue Error Due to Real Estate Surge

National Assembly Budget Office, '2022 First Supplementary Budget Analysis' Report
Capital Gains Tax up 53.9% YoY... Inheritance and Gift Tax, Comprehensive Real Estate Holding Tax rise 44.6% and 69.4% respectively

[Asia Economy Sejong=Reporter Kwon Haeyoung] Last year, national tax revenue is expected to increase by nearly 60 trillion won from the previous year to 343.3 trillion won. Compared to the tax revenue forecast (314.3 trillion won) predicted by the Ministry of Economy and Finance when preparing the supplementary budget, an excess tax revenue of 29 trillion won is expected. The increase in asset taxes such as capital gains tax, inheritance and gift tax, and comprehensive real estate holding tax due to rising real estate prices caused this tax revenue discrepancy.

According to the "2022 First Supplementary Budget Analysis" report released by the National Assembly Budget Office on the 5th, the significant increase in national tax revenue compared to the previous year was attributed to a sharp rise in asset taxes such as capital gains tax, inheritance and gift tax, comprehensive real estate holding tax, and corporate tax.

Looking at each tax item, income tax is expected to increase by 21.8% to 113.4 trillion won compared to 93.1 trillion won in 2020. Among these, capital gains tax is expected to increase by 53.9% to 36.4 trillion won, and earned income tax by 15.9% to 47.4 trillion won compared to the previous year.

Corporate tax is expected to increase by 25.7% to 69.8 trillion won compared to 55.5 trillion won the previous year. Inheritance and gift tax is expected to increase by 44.6% to 15 trillion won during the same period, and comprehensive real estate holding tax is expected to surge by 69.4% to 6.1 trillion won.

Among these, capital gains tax, inheritance and gift tax, and comprehensive real estate holding tax all increased due to the rapid rise in real estate prices. As of 2021, the sale price of land rose by 4.2% and housing by 9.9% compared to the previous year. The publicly announced price, which is the basis for calculating the comprehensive real estate holding tax taxable standard, also increased by 10% for land and 16.3% for housing. As asset prices soared, gifts increased by 32.4% for 80,000 houses and 29.6% for 196,000 land parcels as of the first half of last year, contributing to the increase in gift tax revenue.

The Budget Office analyzed, "The significant increase in national tax revenue despite COVID-19 is mainly due to the continued strong performance of asset tax revenue, rapid recovery of domestic and international economic conditions, and improved corporate tax performance. Among these, the excess collection proportion of asset tax revenue accounted for about 60% of the excess collection compared to the supplementary budget, acting as a major cause of the excess tax revenue."

This is unusual when compared to years with past excess tax revenues. Since 2000, there have been five instances where excess tax revenue exceeded 10 trillion won compared to the budget. In 2000, 2007, and 2018, corporate tax accounted for the largest share of excess collection, and in 2017, value-added tax did. The proportion of asset taxes such as capital gains tax or securities transaction tax was relatively lower compared to corporate tax. It is interpreted that when excess tax revenue occurred previously, it was largely due to unexpected economic recovery and increased volatility in corporate business performance.

The Budget Office stated, "Since the accuracy of tax revenue forecasts is an important prerequisite for securing fiscal soundness and establishing effective fiscal policies, continuous efforts should be made to improve the accuracy of tax revenue forecasts." They added, "It is necessary to expand the scope of information disclosure such as basic data at the individual taxpayer level used in tax revenue forecasts to improve forecast accuracy," and "depending on the characteristics of each tax item, time series models and micro-simulation models should be established to strengthen the methodological foundation to predict short-term price increases and changes in economic agents' behavior."

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