"Tax Reform Revenue Shortfall 13 Trillion Won More Than Government Estimate... The Key Is 'Corporate Tax'"

National Assembly Budget Office Publishes '2022 Tax Law Amendment Analysis' Report

[Asia Economy Sejong=Reporter Son Seonhee] The National Assembly Budget Office (NABO) projected that if the government’s announced '2022 Tax Reform Plan' passes the National Assembly, national tax revenue will decrease by a total of 73.6 trillion won over the next five years starting next year. This figure is 13.3 trillion won larger than the government’s own estimated revenue reduction of 60.3 trillion won.

The largest difference among the three major tax items was in corporate tax, where controversy is expected to resurface over the government’s underestimation of the impact following its announcement of a corporate tax rate cut.

On the 3rd, NABO published a report titled 'Analysis of the 2022 Tax Law Amendment' presenting this analysis of the tax revenue effects.

When the government announced the tax reform plan last July, it initially stated that the total tax revenue reduction from 2023 to 2027 would be 1.31 trillion won. This was based on the 'net method,' which sums changes in tax revenue compared to the previous year. When calculated cumulatively compared to the base year of this year, the total tax revenue reduction amounts to 60.3 trillion won. According to the government’s own estimate, this is the largest scale of tax revenue reduction in about 14 years since 2008.

There was also criticism regarding the government’s announcement of the tax revenue reduction based on the net method, which inherently results in a relatively smaller absolute figure, rather than the cumulative method. NABO explained, "To understand the tax revenue effect compared to the current tax law, it is appropriate to apply the cumulative method showing the increase or decrease compared to the base year."

NABO’s own estimate of the tax revenue reduction under this tax reform plan is a total of 73.6 trillion won (cumulative method). Using the net method, it is 17.2 trillion won, which is still 4.1 trillion won more than the government’s estimate.

The largest discrepancy in tax revenue effects compared to the government’s estimate was in 'corporate tax.' In this tax reform plan, the government announced that to enhance corporate competitiveness, it would simplify the existing four-tier taxable income brackets into two to three tiers and sharply reduce the current top rate of 25% to 22%.

The government expected a tax revenue reduction of about 28 trillion won over five years (cumulative method) due to the corporate tax cut, but NABO projected a larger reduction of 32.3 trillion won, 4.3 trillion won more. The difference between the two institutions’ tax revenue effects arises from the 'adjustment of corporate tax rates and taxable income brackets.' NABO explained, "While NABO assumed that the taxable income of corporations based on 2021 filing data would increase following the long-term trend growth rate of corporate tax, the government assumed that the taxable income of corporations based on 2021 would remain constant in the future."

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