Tax collections fall $10 billion short of mark

Tax revenue in 2014 was nearly 11 trillion won ($10 billion) short of the government’s budget target, the biggest shortfall since 1998, the Ministry of Strategy and Finance reported Tuesday.

It was the third consecutive year the government failed to reach its revenue goal, and it comes at a time of intensifying debate over whether taxes should be raised to fund ever-growing welfare spending.

In 2014, income tax collection expanded significantly, while corporate tax revenue shrank 2.7 percent.

According to the ministry’s report, gross revenue stood at 298.7 trillion won, up 5.8 trillion won from the previous year. Total tax revenue was 205.5 trillion won, 10.9 trillion won short of the government’s goal of 216.5 trillion won.

Non-tax revenue was 93.2 trillion won, 100 billion won below expectations.

“The shortfall is the result of low growth that affected corporate earnings,” said Noh Hyeong-ouk, deputy minister for fiscal affairs. “Sluggish domestic demand and the Korean currency’s appreciation also caused the collection of value-added taxes and import duties to fall.”

Historically low interest rates and the stalled stock market hurt revenue from taxes on interest income and share transactions, said Noh.

Corporate income taxes reached 42.7 trillion won last year, 3.3 percent less than the government’s goal of 46 trillion won.

Corporate earnings stood at 219.2 trillion won last year, down from 229.9 trillion won in 2013. On the other hand, income taxes posted 53.3 trillion won, up 11.5 percent.

Earned income taxes amounted to 25.4 trillion won, up 15.5 percent from 2013, thanks to 530,000 jobs created last year, the ministry said.

Value-added taxes totaled 57.1 trillion won, and import duties were 8.7 trillion won. Both were short of budget expectations.

Experts blame economic forecasts that were too rosy. The government’s targets for GDP growth and inflation were unrealistic, said Kim Sung-tae, a researcher at the Korea Development Institute.

If the revenue forecast is wrong, the government sometimes ends up with no spare money, said Lee Jun-hyup, director of macroeconomic trends at the Hyundai Research Institute.

The country’s gross expenditures totaled 291.5 trillion won last year, a 5.1 trillion won increase compared to 2013, the report showed. The government had planned to spend 317 trillion won.

A more serious problem is that a revenue shortfall is likely to happen again this year. The government in August forecast current account growth of 6.1 percent, which is the sum of GDP growth and inflation rates, for 2015. But in December, it lowered the GDP growth forecast to 3.8 percent and the inflation rate to 2 percent.

BY SONG SU-HYUN [ssh@joongang.co.kr]