Korea braces for huge tax shortfall

PHOTO: Korea braces for huge tax shortfall

SOUTH KOREA - Financial policymakers and authorities are on high alert as the government is expected to see a shortfall in tax revenue this year amid the economic slowdown.

In a report to the Strategy and Finance Committee of the National Assembly on Sunday, the National Tax Service said that the shortfall would reach almost 10 trillion won (S$11.23 billion) in the first half of this year, the biggest loss in four years since the global financial crisis.

The report showed that the government has collected taxes worth some 82.1 trillion won between January and May this year, down more than 9 trillion won from about 91 trillion won a year earlier.

This marks the second highest shortfall since the first five months of 2009, when tax revenue declined more than 10 trillion won in the aftermath of the global crisis.

The government was only able to collect about 41 per cent of total taxes as of the end of May this year. Its goal is to collect nearly 200 trillion won in taxes in 2013, it said when it unveiled the government's supplementary budget of 19.3 trillion won.

This is well below its previous long-standing record of collecting nearly 50 per cent of the total in the first five months of the year.

Low corporate earnings and sluggish private consumption due to the economic slowdown are mostly attributable to a fall in corporate and value-added taxes, decreasing tax revenue for the government.

Lawmakers of the committee noted that the tax shortfall could reach as high as 20 trillion won by the end of this year, prompting the Ministry of Strategy and Finance and the NTS to re-strategize and reevaluate their tax earnings.

Tax shortages could hamper government efforts to improve the economy, especially investing in job creation and welfare expansion, through fiscal stimulus of which most will be funded via taxes, state expenditure cuts and bonds.

However, Finance Ministry officials ruled out the possibility of devising another extra spending plan to make up for the expected tax shortfall amid already high national debt.

Also, it expected government tax revenue to get back on track as the economy heads for recovery in the second half of this year.

"The implementation of extra fiscal spending and policies promoting venture firms, investments and the services sector in the latter half of this year will boost the economy and reduce the shortfall," the Finance Ministry said in a statement.