Tax Revenue Shortfall of 8.8 Trillion Won Until July This Year... "Revised Tax Revenue Estimate to Be Announced Next Month"

Ministry of Economy and Finance Announces July National Tax Revenue Status

National tax revenue collected up to July this year was 8.8 trillion KRW less than last year, which saw the worst tax shortfall in history. Although tax revenue slightly increased in July alone, the progress rate of tax revenue collected compared to the budgeted revenue actually worsened. With concerns growing that the tax shortfall may recur this year following last year, the government plans to announce a revised tax revenue forecast significantly lower than the original budget early next month.

According to the "National Tax Revenue Status as of July 2024" released by the Ministry of Economy and Finance on the 30th, national tax revenue from January to July this year totaled 208.8 trillion KRW, a decrease of 8.8 trillion KRW compared to the same period last year.

Yoon Su-hyun, head of the Tax Analysis Division at the Ministry of Economy and Finance, explained, "Tax revenue in July increased by 1.2 trillion KRW (3.1%) compared to a year ago, but the progress rate has actually deteriorated."

The progress rate of national tax revenue up to July against this year's budget (367.3 trillion KRW) was 56.8%, showing sluggish performance. Although this is a slight improvement from last year's progress rate of 54.3% during the same period, which experienced the worst tax shortfall in history, it remains significantly below the recent five-year average of 64.3%.

The sharp decline in corporate tax is the main cause of the tax revenue shortage. Corporate tax collected from January to July this year amounted to 33 trillion KRW. While corporate tax increased by 600 billion KRW in July alone due to factors such as increased filings, the cumulative amount up to July decreased sharply by 15.5 trillion KRW (31.9%) compared to the previous year.

The progress rate of corporate tax against this year's budget (77.7 trillion KRW) was 42.5%, falling far short of even half. This is lower than last year's progress rate of 46.1% for the same period and significantly below the recent five-year average of 61.6%.

On the other hand, income tax and value-added tax (VAT), which are classified as the three major tax categories along with corporate tax, showed increases. Income tax rose by 100 billion KRW (0.2%) year-on-year to 68.1 trillion KRW. This was due to an increase in interest income tax from high interest rates and a reduction in the decline of earned income tax caused by increased employment and wage growth, although comprehensive income tax payments decreased.

VAT increased significantly, largely offsetting the negative impact of corporate tax. VAT revenue rose by 6.2 trillion KRW (10.8%) compared to a year ago, totaling 62.9 trillion KRW, as consumption increased and refunds decreased, maintaining an upward trend in payments.

Conversely, asset-related taxes are on a declining trend, with comprehensive real estate tax decreasing by 500 billion KRW (27.5%) to 1.2 trillion KRW. Despite an increase in stock trading volume, securities transaction tax revenue fell by 400 billion KRW (11.1%) year-on-year to 3.1 trillion KRW due to the expanded impact of tax rate cuts.

As the government decided to postpone the introduction of the financial investment income tax and lower the securities transaction tax, the securities transaction tax rate dropped by 0.02 percentage points from 0.2% last year to 0.18% this year. Customs duties also decreased by 100 billion KRW (1.9%) to 3.9 trillion KRW due to reduced imports.

As a result, the possibility of a tax revenue shortfall, where actual national tax revenue falls short of the government's annual forecast, has become high again this year following last year. The tax authorities initiate a tax revenue revision if the progress rate deviates by more than 3 percentage points compared to the five-year average as of March, or by more than 5 percentage points as of May.

The Ministry of Economy and Finance is currently recalculating the tax revenue forecast as the progress rate of national tax revenue as of the end of May deviated by more than ±5 percentage points from the past five-year average, triggering an early warning. The ministry plans to release a significantly lowered tax revenue forecast compared to the original budget around mid-next month.