However, the conditions are not favorable for the tax revenue boom to pour in finances. There are several negative factors that could put the brakes on the economic recovery, such as growing concerns about inflation due to the impact of a sharp rise in raw material prices. Real estate and stock-related tax revenues can fluctuate at any time depending on market conditions. In particular, some point out that fiscal sustainability should be considered as the recent brisk tax revenue is a temporary phenomenon due to the base effect and tax deferral.
Expected to grow by 4% this year… National tax revenue expected to reach 320 trillion won
According to the fiscal trends announced by the Ministry of Strategy and Finance, the national tax for January to April this year was 133.4 trillion won, up 32.7 trillion won from the same period last year.
It is judged that the stronger-than-expected economic rebound has also affected tax revenue as the COVID-19 vaccine is accelerating. In fact, the Bank of Korea and the Korea Development Institute (KDI) recently raised their forecasts for this year’s economic growth rate to 4.0% and 3.8%, respectively, by 1.0% and 0.7%, respectively.
Despite the economic crisis last year, the operating profit of listed companies on the KOSPI (based on individual corporations with December settlement) increased by 19.8% year-on-year to 67.5 trillion won, recording good corporate performance.
Assuming that the tax revenue conditions do not deteriorate sharply after May, simply adding only the increase in January to April to last year’s national tax (285.5 trillion won) will bring up to 320 trillion won in tax revenue this year.
As major tax payment schedules are scheduled for the second half of the year, expectations for an increase in tax revenue are growing. According to the National Tax Service, in August of this year, interim prepayment of corporate tax for January to June of this year and installment payment of final income tax return for 2020 for corporations with a December settlement of accounts.
In November, income tax payments for January to June of this year will be paid in advance, and comprehensive real estate tax will be paid for December 2021.
The amount of corporate tax payment is also expected to increase significantly thanks to the brisk earnings of domestic exporters, with exports in May reaching a record high of US$50.7 billion as of the same month. In particular, the inheritance tax of the late Samsung Group Chairman Lee Kun-hee, worth 12 trillion won, is expected to contribute to the increase in tax revenue as an unexpected contingent tax.
Amid the increase in real estate transactions, the related tax revenue is expected to increase significantly due to the government’s increase in property taxes and other ownership taxes. The National Assembly Budget Office predicted in a report last month ‘Forecast and Factor Analysis of Householding Tax Revenue for 2021’ that this year’s housing ownership tax will reach up to 12 trillion won, increasing by 5 trillion won from the previous year.
Kim Woo-cheol, a professor of tax at the University of Seoul, said, “The increase in tax revenue seems to be large until the first half of the year, which includes deferred payment of last year, base effect, and growth rate effect. Considering that the amount will come out, it is expected that tax revenue of 302 trillion won is expected even if it is simply applied (compared to last year’s tax revenue),” he said.
The Ministry of Strategy and Finance is still cautious about forecasting additional tax revenues. An official from the tax analysis division of the Ministry of Strategy and Finance said, “It is true that it is too early to predict accurately, but it is true that the tax revenue will be estimated from May to December (which has not yet been released), based on what the economic outlook will be. We are reviewing it in an objective way,” he explained.
“Mid to long-term tax revenue conditions are not favorable, preparation is necessary”
However, there are many factors that change this year’s tax revenue forecast. First of all, it is difficult to guarantee that excess tax revenue will occur in the second half of the year as it is now, given that normal tax revenues show more ‘high and low’ characteristics in the first half than in the second half. Corona variables still exist, such as the spread of the corona virus, and concerns about inflation due to rising raw material prices are growing.
In a recent economic trend report on the 7th, KDI said, “The face-to-face service industry is still sluggish due to the continued spread of Corona 19.” “The imbalance in the supply and demand of global raw materials and intermediate goods is likely to act as a risk factor for economic recovery in the future.”
It is also impossible to predict whether the real estate and stock fever will continue. The transfer tax, which accounts for the largest portion of real estate tax revenue, could face a transaction cliff at any time as the government decides to raise the tax rate up to 75%. There are also strong voices calling for a tax rate cut as it is pointed out that the real estate tax is excessive. In the stock market, it is difficult to predict how long this fever will continue.
Hong Ki-yong, a professor of taxation at Incheon University (Chairman of the Korea Taxpayers Association), said, “It will not be easy for real estate prices to fall, but if the price is stabilized, transactions may decrease and related tax revenue may decrease compared to the previous year. The effect of additional tax revenue increase in the second half of the year will not be large because there is a large tendency not to pay the tax first,” he said.
Some pointed out that fiscal soundness should be considered after the COVID-19 outbreak as the tax revenue conditions are not positive in the mid- to long-term.
Kim Jeong-hoon, head of the Institute for Fiscal Policy, said in an article on fiscal trends, “Considering the decrease in tax revenue due to aging and low growth and the strengthening of fiscal decentralization, the medium- and long-term conditions for tax revenue are not favorable. Structural innovation cannot but be done concurrently,” he suggested.