Next Year’s Tax Revenue Expected to Increase by 15 Trillion Won... Record High National Tax Exemptions [2025 Budget Plan]

The government has proposed next year's national tax revenue at 382.4 trillion won, an increase of 15.1 trillion won compared to this year's budget. This projection is based on expectations that tax revenue performance, including corporate tax, will improve due to strong corporate earnings this year and a gradual recovery of domestic and international conditions next year. The amount of national tax reductions, such as tax credits and income deductions, is expected to reach 78 trillion won, an increase of 6.6 trillion won from this year, marking a record high.

The Ministry of Economy and Finance announced on the 27th that it will submit the '2025 National Tax Revenue Budget' and the '2025 Tax Expenditure Budget,' which include these details, to the National Assembly on the 2nd of next month.

Choi Sang-mok, Deputy Prime Minister for Economy and Minister of Strategy and Finance, is speaking at the party-government consultation meeting on the 2025 budget held at the National Assembly on the 20th. Photo by Kim Hyun-min kimhyun81@

Next Year's Tax Revenue to Increase by 4.1% Compared to This Year... Corporate Tax Up 14%, VAT Up 8%

The national tax revenue budget for next year is expected to increase by 15.1156 trillion won (4.1%) compared to this year. By major tax items, corporate tax for next year is projected at 88.5013 trillion won, an increase of 10.8364 trillion won (14.0%) from this year's revenue budget, reflecting improved corporate earnings.

Income tax is estimated at 128.0066 trillion won, up 2.2461 trillion won (1.8%) from this year's budget. Specifically, earned income tax is expected to increase by 2.6983 trillion won (4.3%) due to wage increases and employment growth, and dividend income tax is anticipated to rise by 7.719 billion won (19.8%) due to improved performance of major corporations.

Value-added tax (VAT) is forecasted at 88.0201 trillion won, an increase of 6.6133 trillion won (8.1%) compared to this year, influenced by increased private consumption and expanded imports.

On the other hand, inheritance and gift tax, securities transaction tax, and individual consumption tax are expected to decrease by 12.7879 trillion won (12.7%), 3.8454 trillion won (28.6%), and 9.6663 trillion won (5.2%) respectively compared to this year. Transportation, energy, and environmental taxes, as well as customs duties, are also expected to decline by 221 billion won (1.4%) and 497.2 billion won (5.6%) respectively.

Concerns persist that the government's revenue base has weakened, as tax revenue shortfalls have been confirmed for two consecutive years, last year and this year. Following a massive tax revenue deficit of 56.4 trillion won last year, this year also faces a likely shortfall due to poor tax revenue performance, including corporate tax.

National tax revenue recorded 168.6 trillion won through the first half of this year, which is 10 trillion won less than the same period last year. Since March this year, national tax revenue has turned negative on a cumulative basis and the decline has deepened. The progress rate against the national tax revenue budget (367.3 trillion won) stands at 45.9%, meaning that less than half of the budgeted revenue was collected by mid-year. However, this is a slight improvement compared to last year's record worst shortfall (44.6%). VAT and income tax increased by 5.6 trillion won and 200 billion won respectively, but this was not enough to offset the 16.1 trillion won decrease in corporate tax.

The government plans to maintain an average annual growth rate of national tax revenue at around 4.9% until 2028. The Ministry of Economy and Finance stated, "We expect tax revenue growth to continue at a level higher than the nominal growth rate (4.5%) due to strong corporate earnings this year and improved domestic and international conditions next year."

National Tax Reduction Rate Expected to Exceed Legal Limit by 0.7 Percentage Points

Next year's national tax reduction amount is expected to be 78.0178 trillion won, an increase of 6.6 trillion won (9.2%) from this year's forecast (71.4305 trillion won). This is anticipated to be the largest scale of national tax reductions ever, driven by increases in integrated investment tax credits due to corporate earnings recovery.

The national tax reduction rate for next year is 15.9%. This exceeds the legal limit of 15.2%, which is calculated by adding 0.5 percentage points to the average national tax reduction rate of the previous three years. This marks the third consecutive year that the national tax reduction rate has exceeded the legal limit, following 15.8% last year and 15.3% this year.

The government expects this year's national tax reduction rate to be 15.3%, exceeding this year's legal limit (14.6%) by 0.7 percentage points. This estimate is based on this year's revenue budget, and if tax revenue decreases more than expected amid likely revenue shortfalls, this year's national tax reduction rate could rise further.

Considering that the legal limit for the national tax reduction rate is calculated based on the average of the previous three years, this will be a factor that raises next year's legal limit for the national tax reduction rate.

Expansion of Tax Reduction Share for Large Corporations

The government expects that among the national tax reductions allocated to corporations next year, the share for large corporations (mutual investment restriction companies) will be 17.9%. This is a significant increase from this year's forecast of 9.7%, influenced by carryover of deductions due to the recovery of large corporations' earnings.

Among national tax reductions allocated to individuals, the share for high-income earners is expected to slightly increase to 33.4% from 33.2% this year. The increase in the high-income earners' share is attributed to the natural rise in reductions related to social insurance premiums such as health insurance and national pension. Conversely, the share for middle- and low-income earners is expected to slightly decrease to 66.6% from 66.8% this year.