Tax Revenue from January to March Down by 2.2 Trillion Won Compared to Last Year... Impact of Sharp Decline in Corporate Tax (Comprehensive)

Corporate Tax Drops 22% in Same Period
Concerns Over Revenue Shortfall... Stabilizing Corporate and VAT Key

National tax revenue through March this year has decreased by 2.2 trillion KRW compared to last year. This is due to a sharp decline in corporate tax revenue caused by worsening corporate earnings. With corporate tax revenue falling short compared to last year, which saw the worst tax shortfall in history, concerns over tax revenue deficits are growing this year as well.

According to the national tax revenue status announced by the Ministry of Economy and Finance on the 30th, national tax revenue from January to March amounted to 84.9 trillion KRW, a decrease of 2.2 trillion KRW (2.5%) compared to the same period last year. The progress rate against this year's national tax revenue budget was 23.1%, down from 25.3% last year. It is also 2.8 percentage points lower than the recent 5-year average of 25.9%.

The decrease in corporate tax, one of the three major tax items along with value-added tax and income tax, influenced the decline in national tax revenue. Corporate tax revenue in March was 15.3 trillion KRW, a sharp drop of 5.6 trillion KRW (26.9%) compared to the same month last year.

This is due to a sharp decline in operating profits of companies on an individual basis last year, with KOSPI-listed companies down 45.0% and KOSDAQ-listed companies down 35.4% compared to the previous year. In particular, large corporations with a significant share of corporate tax, such as Samsung Electronics and SK Hynix, did not pay corporate tax due to operating losses.

As a result, cumulative corporate tax revenue from January to March was 18.7 trillion KRW, down 5.5 trillion KRW (22.8%) compared to the same period last year. The progress rate of corporate tax against the budget is 24.1%, which is lower than last year's 30.2% and also insufficient compared to the recent 5-year average of 29.6%.

During the same period, income tax revenue was 27.5 trillion KRW, down 7 trillion KRW (2.5%) from last year. Although interest income tax increased due to high interest rates, earned income tax decreased as major companies' performance bonuses declined. Earned income tax collected was 16.8 trillion KRW, down 1.7 trillion KRW from last year.

Value-added tax increased by 3.7 trillion KRW (22.5%) compared to last year, collecting 20.2 trillion KRW due to increased filing payments and decreased refunds.

The government pointed out that concerns over tax revenue deficits this year depend on the stabilization of corporate tax and value-added tax revenue going forward. The payment performance of financial holding companies filing corporate tax in April is a key variable. Value-added tax revenue is also expected to change with the recovery trend in private consumption.

Yoon Soo-hyun, head of the Tax Analysis Division at the Ministry of Economy and Finance, said regarding corporate tax, "Corporate performance in the first quarter this year is better than expected," adding, "The mid-term prepayment in August is expected to show better results than anticipated." He further explained, "Taxes affected by last year's factors, such as corporate tax and earned income tax performance bonuses, are decreasing, while taxes affected this year are increasing, so it depends on how much improvement occurs this year."

If the fuel tax reduction measure is extended due to changes in international situations such as in the Middle East, a tax revenue hit is inevitable. The tax authorities initially planned for the fuel tax reduction to end at the end of this month when forecasting this year's revenue, but the rapid changes in the Middle East situation extended it to the end of June, affecting the decrease in tax revenue. Considering oil price fluctuations, the tax authorities expect the fuel tax reduction measure to normalize from July.