[Urgent Check] 'Gyeonggi Barometer' Tax Revenue Also Shrinking... Government Faces Emergency in Tax Revenue Management

Transfer Tax and Securities Transaction Tax Revenue Decreased by 3.4 Trillion Won Until July This Year
Last Month Securities Transaction Tax Halved... Decline Accelerated After August
Concerns Over Dual Decline in Property Tax and Corporate Tax if Stagflation Materializes

[Asia Economy Sejong=Reporter Kwon Haeyoung] Income from capital gains tax and securities transaction tax, which are among the lagging indicators of the real economy, decreased by 3.4 trillion won from the beginning of this year to July, raising alarms over the government's tax revenue management. This is the result of a sharp contraction in the asset market due to interest rate hikes caused by the U.S.'s high-intensity monetary tightening. If concerns about stagflation (rising prices amid economic recession) materialize next year, there are growing worries that even corporate tax revenue, which has been a 'pillar,' could decline, causing the government's tax income to retreat.

According to the Ministry of Economy and Finance on the 4th, the trend of national tax revenue collected since the beginning of the year shows a marked decline mainly in asset-related taxes. Capital gains tax revenue amounted to 20.7 trillion won through July this year, down 5.9% compared to the same period last year, and securities transaction tax revenue shrank by 33.3% to 4.2 trillion won during the same period. This is due to a decrease in real estate transactions such as land and housing, as well as securities trading volume, caused by the impact of interest rate hikes.

The contraction in asset tax revenue has accelerated further since August, when the won-dollar exchange rate surged sharply due to the U.S.'s high-intensity monetary tightening, causing significant volatility in the financial market. Securities transaction tax collected in August was 500 billion won, which is half of what it was a year ago. During this period, capital gains tax revenue also slightly decreased, according to the Ministry of Economy and Finance.

If this trend continues, the government's forecast for capital gains tax revenue this year is estimated at 34.2228 trillion won, a 6.8% (2.4844 trillion won) decrease from last year's performance. Securities transaction tax is also expected to decline by 26.5% from the previous year to 7.538 trillion won. Separately, acquisition tax, a local tax, is expected to collect 30.313 trillion won based on estimates by the Korea Local Tax Research Institute, down 10.4% compared to the previous year.

Tax revenue generally tends to lag behind the economy. As concerns grow that a recession may begin in Europe next year, there is even the possibility of negative growth in tax revenue, which is a barometer of the economy. While corporate tax has been holding up this year, both asset tax and corporate tax could decline simultaneously next year. The government expects corporate tax to increase from 70.3963 trillion won last year to 104.0662 trillion won this year, influenced by a 58.2% increase in operating profit of KOSPI companies with December fiscal year-end last year and a 7.4% increase in the first half of this year.

The problem is that corporate earnings are expected to decline starting from the third quarter of this year. According to financial information firm FnGuide, the third-quarter profits of 235 KOSPI-listed companies, for which three or more securities firms have provided earnings forecasts, are estimated to decrease by 14.04% compared to the same period last year. The government forecasts next year's corporate tax revenue to increase by 0.9% from this year to 104.9969 trillion won, but this is also criticized as an optimistic outlook. The government based its tax revenue forecast on a 2.5% economic growth rate for Korea next year, while the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) have projected growth rates of 2.1% and 2.2%, respectively.

There is no disagreement regarding the forecasted decline in asset tax revenue. The government projects that capital gains tax will collect 29.7197 trillion won and securities transaction tax 4.9739 trillion won next year, down 13.2% and 34%, respectively, from this year. Acquisition tax is expected to record 24.39 trillion won, a 19.5% decrease based on estimates by the Local Tax Research Institute.

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