'Worst Ever' 24 Trillion Won Tax Revenue Shortfall... Corporate Tax Deficit Confirmed

March National Tax Revenue Drops Sharply from 111.1 Trillion to 87.1 Trillion
Corporate Tax Collection Falls Short by 6.8 Trillion... "Difficult to Reach Target"
Tax Collection Progress Rate Also Declines from 28.1% to 21.7%
Optimistic Revenue Forecast Hinders Progress, Re-estimation Underway

Last month, the decline in national tax revenue reached a record high of 24 trillion won. The major tax item, corporate tax, virtually failed to meet its target. Even if taxes are collected as in the previous year when the tax revenue situation was favorable, there is expected to be a shortfall of 30 trillion won by the end of the year compared to the initial forecast. Amid criticism that the government set the revenue budget too optimistically, the Ministry of Economy and Finance has indicated its intention to conduct a tax revenue re-estimation.

According to the national tax revenue status announced by the Ministry of Economy and Finance on the 28th, the cumulative national tax revenue last month was 87.1 trillion won, falling short by 24 trillion won from last year's 111.1 trillion won. This is the largest decline ever recorded as of March. The scale of the tax revenue shortfall has been increasing, with -6.8 trillion won in January and -15.7 trillion won in February. The government had projected national tax revenue of 400.5 trillion won this year, but even if the same amount of tax revenue as last year is collected over the remaining nine months, a deficit of 28.6 trillion won will occur. Considering that tax revenue conditions are worse than the previous year, the shortfall is expected to be even larger.

The progress rate is also deteriorating. The progress rate is an indicator showing actual tax revenue against the government's revenue budget, representing the speed at which taxes are collected. The progress rate in March was 21.7%, down 6.4 percentage points from 28.1% the previous year. This means that tax revenue is coming in more slowly. It is also slower compared to the recent five-year average of 26.4%.

Corporate tax is expected to face a definite shortfall. Last month, corporate tax revenue was 24.3 trillion won, down 6.8 trillion won due to reduced corporate operating profits caused by the global economic slowdown and sluggish exports. Among this, the tax revenue decrease due to the extension of the interim payment deadline for small and medium-sized enterprises was about 1.6 trillion won. Jeong Jeong-hoon, Director General of Tax Policy at the Ministry of Economy and Finance, explained, “The economy began to slow down faster than expected,” adding, “It will be difficult to reach the initial corporate tax target of 105 trillion won.”

Income tax revenue was 28.2 trillion won, down 7.1 trillion won. In particular, capital gains tax and comprehensive income tax saw significant decreases. This is a result of a roughly 40% decline in housing sales and pure land sales compared to the previous year at the beginning of this year, reflecting a decrease in real estate transactions. The base effect of comprehensive income tax, including the extension of the interim payment deadline for small-scale self-employed individuals, also played a role.

Optimistic Tax Revenue Outlook Holds Back Progress: "Will Conduct Tax Revenue Re-estimation"

As a result, criticism has arisen that the government set the tax revenue target too optimistically. The revenue forecast exceeding 400 trillion won was announced in August last year. It was 1.2% larger than in 2022, a period of tax revenue boom. Even then, there were concerns that the revenue forecast was optimistic because the asset market contraction had begun due to the rapid increase in benchmark interest rates. Major domestic and international institutions also simultaneously lowered South Korea's economic growth forecasts, but the Ministry of Economy and Finance did not change the tax revenue target.

As concerns about tax revenue shortfalls become a reality, there are also worries that existing tax support measures may be reduced. The Ministry of Economy and Finance is currently conducting an in-depth evaluation of 23 tax special cases. Although this evaluation is conducted annually, it includes systems aimed at ordinary citizens such as the earned income tax credit, monthly rent tax credit, and special deduction for housing funds for non-homeowners. If it is judged that these measures lack effectiveness, the systems may be terminated or benefits reduced.

The government has also changed its previous stance of not conducting a tax revenue re-estimation. Tax revenue re-estimation is a process where the Ministry of Economy and Finance adjusts the tax revenue target by reflecting changed economic indicators to prevent tax revenue errors. On the 25th, in response to criticism about not conducting a re-estimation despite concerns over tax revenue shortfalls, the Ministry stated, “It is too early to re-estimate this year's tax revenue forecast due to high uncertainty.” In response, Jang Hye-young, a member of the National Assembly's Planning and Finance Committee from the Justice Party, pointed out, “They decided to maintain the existing revenue scale, fearing that reducing the revenue size would intensify controversy over tax cuts, and rather chose to accept the tax revenue deficit.”

Director General Jeong Jeong-hoon said, “To use finances and budgets quickly and well, not only national tax revenue but also thorough inspections are necessary,” adding, “Since the situation is quite difficult, we plan to conduct a re-estimation internally.” He also added, “This does not mean that the re-estimation will be disclosed or that it conflicts with previous announcements.”

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