Economy down, tax collection up
This was largely thanks to increased spending, fueled by government policies that were aimed at boosting the domestic economy through consumption.
According to the Ministry of Strategy and Finance on Tuesday, in the first quarter the government collected 64 trillion won in taxes, which is 13.8 trillion won more than the 50.2 trillion won that was collected in the first quarter of last year. As a result, the government’s collection is equivalent to 28.7 percent of this year’s overall target of 222.9 trillion won.
The increase in tax collection in the first three months was largely due to the sharp increase in value-added tax, levied on spending made on goods and services.
In the first three months, value-added taxes increased nearly 44 percent from 10.3 trillion won a year ago to 14.8 trillion won. Value-added tax was the third-largest by size after income tax and corporate tax. The government, worried that the economy may begin to contract, revived the easing on individual consumption taxes levied on various products, ranging from automobiles to luxury fashion items such as bags. The government lowered tax rates on such products last year in the hopes that boosting sales would help improve the domestic economy. The tax ease, which ended at the beginning of the year, was revived a month later in February after the nation was heavily hit by the unexpected tumbling of the Chinese market.
Income tax was another major contributor in increasing the government’s tax collection. In the first quarter, the government collected 16.6 trillion won in income tax, which is 3.6 trillion won more than the amount collected in the first three months of 2015. This was the second-largest increase in government-collected taxes.
Corporate taxes also grew in the first quarter of this year compared to a year ago. The government collected 15.8 trillion won from companies, or 23 percent more than a year ago. Profit growth last year helped increase corporate taxes. According to Korea Exchanges, the net profits of companies that are listed on the stock markets and whose fiscal year ended in December amounted to 63.4 trillion won, an 18.7 percent increase compared to the previous year.
The question now is whether the government will be able to enjoy hefty collections of taxes in coming months, especially as the economy has been faltering.
“The first quarter tax collections usually reflect the economy of the previous year,” said Kim Byung-cheol, director of tax analysis at the Finance Ministry. “To project this year’s tax collection direction we would have to closely watch how much is collected after April.”
In the first quarter, the economy reported 0.4 percent quarterly growth. Not only is this the second consecutive month that the economy has expanded by less than 1 percent, but it was the slowest since the second quarter of 2015, when the economy dropped by half after the outbreak of the contagious Middle East respiratory syndrome (MERS).
With uncertainties looming over the economy, the government frontloaded its budget and spending in the first by 117.5 trillion won, which is 12.2 trillion won more than a year ago, or an 11.6 percent increase. The total income, including the tax that the government collected, amounted to 103.4 trillion won during the same period, which is a 16 percent increase. Hence, the fiscal deficit in the first quarter amounted to 14.1 trillion won. This is an improvement from the 16.2 trillion won deficit reported in the first quarter of last year.
BY LEE HO-JEONG [firstname.lastname@example.org]