Tax revenue for 2012 fell short of target
According to the Ministry of Strategy and Finance, the country’s total tax revenues stood at 203 trillion won ($185 billion) in 2012, up 5.5 percent from a year earlier.
But it was 1.3 percent lower than the government’s goal of 205.8 trillion won.
The ministry said tax payments trickled off mainly because of a slowing economy.
As consumers cut back on their spending, they paid less value-added tax last year. Because of decreased imports, the country saw declines in its tariff collections.
Total VAT revenue stood at 55.7 trillion won, 1.1 trillion won lower than expected. However, the amount was 3.8 trillion won more than in 2011.
The government collected 9.8 trillion won in tariffs on imports, 1.2 trillion won less than in 2011 and 1.8 trillion won less than planned.
Meanwhile, income tax revenues rose to 45.8 trillion won, up 3.5 trillion won from the previous year, owing to an increased number of self-employed people who faithfully paid taxes and an additional 440,000 jobs created last year.
Corporate tax revenue also increased to 45.9 trillion won, up about 1 trillion won from 2011, as more businesses registered their sales and profits last year.
Lower tax revenue might pose a threat to the incoming government’s welfare policies, which require over 130 trillion won.
If President-elect Park Geun-hye wants to carry out her welfare pledges, 26.3 trillion won will be needed every year, totaling 131.4 trillion won for the next five years. The Finance Ministry is preparing to finance about 60 percent of the cost from the government’s budget for 2013 by cutting unnecessary expenditures.
However, government officials agreed that a more difficult task would be raising tax revenues amid a current economic downturn.
There has been controversy over raising the country’s VAT rate from the current 10 percent. The average VAT tax rate of OECD countries is 22 percent.
If people want an improved welfare safety net, they must pay for it, said Kang Bong-kyun, the finance minister during the Kim Dae-jung administration, at a forum last year.
Since the VAT was introduced to the country in 1977, it has never been raised.
The rate was proposed at 13 percent at the time, but it was lowered to the current level due to stiff opposition from the public.
“Raising the VAT rate by 2 percentage points would cause the annual tax revenue to increase by 15 trillion won,” Kang said.
“This would be the most effective method of generating more cash for the government to spend.”
The VAT is seen as the easiest tax to play with because the rate is so low compared to advanced countries.
Denmark and Sweden set their rates at 25 percent, while Britain has its at 20 percent, France charges 19.6 percent and Germany 19 percent, according to the Korea Institute of Public Finance.
The institute also suggested raising the rate. It estimates that a 1 percentage point hike in the VAT rate would add 5.9 trillion won to total tax revenues next year, while the extra amount would climb to 7.8 trillion won by 2017.
The Finance Ministry also announced yesterday the government’s total revenue and expenditure for the fiscal year 2012. The government raked in 282.4 trillion won in revenue, while it spent 274.8 trillion won.
The surplus stood at 7.6 trillion won. But, since 7.7 trillion won for projects by the Ministry of Defense and Ministry of Land, Transport and Maritime Affairs will only be spent this year, the government will actually see a deficit of 100 billion won, according to the ministry’s calculation.
Total revenue fell short of the budget estimate of 282.7 trillion won. Meanwhile, the government executed 95.4 percent of its planned spending, the ministry said.
“The deficit level is considered very low compared to the past, so we can say the government has achieved almost a right balance between revenue and spending,” said Lee Tae-sung, a director of the Finance Bureau at the ministry.
Including last year, there were four times when the government faced deficits on its account.
By Song Su-hyun [firstname.lastname@example.org]
More in Finance
Kim Kwang-soo named as sole candidate to head banking federation
Kospi hits record 2,602.59 as optimism continues after U.S. election result
Dollar deposits jump as punters bet on currency's rebound
Reservation app operator Yanolja to go public next year
KDB says Hanjin KAL funding on the up and up