Government facing fiscal deficit from corporate tax shortage
Published: 06 Jun. 2023, 17:58
Updated: 07 Jun. 2023, 00:57
The total corporate tax collected in the first four months this year was 35.6 trillion won ($27.2 billion), down 30.8 percent on year, according to a report released by the Ministry of Economy and Finance on May 31.
The drop in corporate tax revenue was steeper than two other sources of national tax revenue, due in part to dampened earnings by companies. Income tax was down 19.9 percent and value-added tax was down 9.6 percent in the same period.
The government initially expected tax revenue for this year to reach 400.5 trillion won. Corporate tax accounted for 26.2 percent of the pie at 105 trillion won, the second-highest after income tax at 132 trillion won. But the Finance Ministry adjusted the forecast to collect around 90 trillion won of corporate tax this year.
The reduction in capital gains tax and securities transaction tax following a slowdown in the assets market was the major contributor to the reduced tax revenue earlier in the year. But from March, the role was handed over to corporate tax as more than a million corporations began reporting and paying taxes based on the previous year’s earnings.
These companies’ earnings were slashed in the latter half of last year amid an economic slump. The average operating profit for 262 of the top 500 Korean companies in the fourth quarter last year shrunk by 69.1 percent on year, according to business data tracker CEO Score.
An interim prepaid corporate tax that allows companies to disperse their tax burden by paying taxes biannually also complicated the government's budget calculation.
The interim corporate tax revenue in the latter half of last year based on first-half earnings amounted to 34.3 trillion won, up 8.7 trillion won on year, backed by solid earnings from companies. But with companies underperforming amid the ongoing economic slump, prepaid corporate tax for this year is expected to be smaller in size.
The operating profit of 622 Kospi-listed companies in the first quarter this year fell 53 percent on year, according to the quarterly earnings data released by Korea Exchange and Korea Listed Companies Association on May 17. The number of companies that inked red in the same quarter totaled 152, or 24.4 percent.
“Earnings of major semiconductor companies are key in corporate tax, but paying estimated corporate tax will be difficult [for many] because of the subpar business conditions in chips as well as other sectors,” said Kim Woo-cheol, a professor of taxation at the University of Seoul.
These companies “may choose to hold on to their cash reserves instead of making mid-term estimate tax payments amid dampening economic outlooks,” Kim added.
BY KIM KI-HWAN [sohn.dongjoo@joongang.co.kr]
with the Korea JoongAng Daily
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