Government to Cut Taxes by 60 Trillion Won This Year... National Tax Reduction Rate Expected to Stay Below Legal Limit

[Asia Economy Sejong=Reporter Kim Hyewon] This year, the government’s tax cuts are expected to reach a record high of 59.5 trillion won. Contrary to initial expectations that the national tax reduction rate would exceed the legal limit for three consecutive years under the Moon Jae-in administration, last year’s national tax reduction rate is estimated to have fallen below the limit.

The Ministry of Economy and Finance announced on the 29th that the Cabinet approved the "2022 Basic Plan for Tax Expenditure," which includes this information. Tax expenditure refers to the government not collecting certain taxes in order to achieve specific policy goals, effectively functioning as fiscal spending.

The Ministry of Economy and Finance set the national tax reduction amount at 59.5 trillion won to support vulnerable groups in response to COVID-19 and to boost economic vitality, as was the case last year. This is a 6.4% increase from last year’s estimate of 55.9 trillion won, marking the largest amount ever. Total national tax revenue is projected at 367.4 trillion won. The forecasted national tax reduction rate relative to revenue is 13.9%, which is below the legal limit of 14.5%.

Last year’s national tax reduction amount is estimated at 55.9 trillion won (national tax reduction rate of 13.3%). The Ministry of Economy and Finance had expected the national tax reduction rate to exceed the legal limit of 14.3% last year, following 2019 and 2020, but this was not the case. A ministry official stated, "The increase in national tax reductions has slowed due to the adjustment of tax exemptions and reductions, and the national tax reduction limit was likely not exceeded due to strong national tax revenue."

This year, the national tax reduction amount for individuals is estimated at 37.5 trillion won. Of this, 68% is allocated to low-income and middle-class groups, while 32% corresponds to high-income groups. Corporate tax reductions are estimated at 21.5 trillion won, with 75.4% expected to benefit small and medium-sized enterprises and mid-sized companies. By sector, among this year’s tax expenditures, worker support including the Earned Income Tax Credit (EITC) accounts for the largest share at 40.6% (24.2 trillion won). This is followed by support for agriculture, forestry, and fisheries (10.3%), investment promotion and employment support (8.7%), and research and development (6.5%).

Among the 227 tax expenditure items, 74 items are set to expire this year, totaling 10.3 trillion won. The Ministry of Economy and Finance plans to conduct in-depth evaluations of 19 items with annual reductions exceeding 30 billion won to analyze performance and develop improvement measures. The introduction of new tax expenditures will be allowed only in a limited manner when necessary to expand growth engines such as youth support or job creation, and strengthened preliminary feasibility assessment exemption criteria will be applied to prevent expenditures whose policy nature or effectiveness has not been confirmed.

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