Shrinking tax revenues raise concerns over fiscal belt-tightening policy

The Korea Times

The Korea Times

Finance

Sat, September 30, 2023 | 07:54

Economy

Shrinking tax revenues raise concerns over fiscal belt-tightening policy

Posted : 2023-05-31 16:41

Updated : 2023-06-01 08:30

The signboard of the Ministry of Economy and Finance at Government Complex Sejong / Korea Times file

By Yi Whan-woo

A steep decline in tax revenues, which shrank by 33.9 trillion won ($25.57 billion) in the first four months of 2023 from a year earlier, is raising concerns over the government's belt-tightening policy.

Announced by the Ministry of Economy and Finance, Wednesday, the year-on-year decline in tax revenues in the January-April period was the steepest on record.

In particular, tax revenues fell by 9.9 trillion in April from a year earlier, also marking the sharpest year-on-year decline for that month.

The ministry said tax revenues in the first four months of this year amounted to 134 trillion won, accounting for 33.5 percent of the government's yearly target of 400.5 trillion won for 2023.

That is below the average 37.8 percent of annual tax revenues collected by April seen over the past five years. It is also the slowest rate of tax revenue growth since 2000 when the government began to compile relevant data.

The shortage in tax revenues comes as the Yoon Suk Yeol administration is opting to ease the tax burden on businesses to help stimulate corporate profits so they will be able to pay more taxes, while the government cuts back on fiscal spending under a broader market-driven economic vision.

The policy, however, has not been fruitful. Corporate tax revenue growth remains anemic as businesses struggle to cope with sluggish exports.

The amount of corporate taxes collected in the January-April period came to 35.6 trillion won, down 30.8 percent from a year earlier.

During the same period, income tax revenues slid 19.9 percent to 35.7 trillion won due to a slump in the housing market.

Under the circumstances, a senior ministry official implicitly acknowledged that the government's tax revenue will fall short of projections by saying, "We will newly estimate the tax amount for 2023 by late August or early September."

The official still did not comment on the possibility of planning a supplementary budget or restricting budget spending as demanded by the main opposition Democratic Party of Korea (DPK) and civic groups.

"The government's stance apparently suggests it is not flexible about its budget and tax plans, and we're concerned that problems associated with a tax revenue shortage will become more serious," a member of the Citizens' Coalition for Economic Justice said.

Asking not to be named, the activist said exports are showing no signs of a recovery after declining for the seventh consecutive month as of April.

Another civic group, People's Solidarity for Participatory Democracy, urged the Yoon administration to "consider hiking corporate taxes and other taxes that are intended to enrich the haves."

It argued that large corporations can afford to pay corporate taxes compared to smaller businesses and the reduced maximum corporate tax under the Yoon government was unnecessary.

yistory@koreatimes.co.kr