Plunging tax revenues threaten government's fiscal health

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Plunging tax revenues threaten government's fiscal health

Finance Minister Choo Kyung-ho speaks during a press conference on Tuesday at the government complex in Sejong. [YONHAP]

Finance Minister Choo Kyung-ho speaks during a press conference on Tuesday at the government complex in Sejong. [YONHAP]

 
Falling tax revenues are posing a tangible threat to the Korean government’s fiscal soundness amid rising debt levels with tax income between January and April shrinking the most ever on year.  
 
Tax revenues between January and April stood at 134 trillion won ($101 billion), down 33.9 trillion won or 20.2 percent compared to the same period last year, according to the Ministry of Finance and Economy Wednesday. This represented the greatest yearly difference since the government began collecting the relevant data.
 
Tax revenues fell across the board, including individual income, corporate and consumption taxes.  
 
Given its planned annual budget proposed at 400.5 trillion won, tax revenues through April account for only 33.5 percent of the annual budget.  
 
In April alone, the government brought in 46.9 trillion won, down 17.5 percent over a year ago, although the month is considered the single largest month for tax collections with the filing of corporate tax and individual tax installments starting in April.  
 
“Even the month historically generating the most taxes fell short of expectations,” said Kim Woo-cheol, a University of Seoul professor of taxation.  
 
“The government will face a shortfall of 38.5 trillion won for the annual budget target of 400.5 trillion won this year even based on a favorable scenario where it collects a comparable amount of taxes as last year through the end of this year,” the professor noted.  
 
The sharp decline is attributed to falling receipts of corporate and individual taxes.  
 
The ministry collected 11.3 trillion won in corporate tax revenue in April, down 44.4 percent on year, due to decreasing profit at major Korean companies.  
 
Tech giants like Samsung Electronics and SK hynix reported operating losses in their semiconductor business, hit by sluggish demand for smartphones and televisions.  
 
Individual income revenue also dipped by 19.5 percent to 7.5 trillion won in April as reduced property transactions in the cooling real estate market pushed down capital gains tax receipts.  
 
The decrease in tax collection came as the government continues to wrestle with ballooning government debt.
 
The central government’s debt hit the 1,000 trillion-won threshold last year for the first time ever at 1,033.4 trillion won, according to the Board of Audit and Inspection.  
 
Finance Minister Choo Kyung-ho, however, played down the possibility of a supplementary budget allocation.  
 
“Conditions for tax collections could be exacerbated, but a supplementary budget is not in the cards,” Choo told reporters Tuesday in a press briefing.
 
The government could tap into last year's budget surplus and the ministry’s own funds as resources to supplement the shortfall. Last year’s budget surplus came at 6 trillion won, about 2.8 trillion won of which could be funneled into making up the shortfall. 

BY PARK EUN-JEE, KIM KI-HWAN [park.eunjee@joongang.co.kr]
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