Tax revenue growth credit-positive for Korea: Moody’s

[THE INVESTOR] A significant rise in South Korea’s tax revenues in the first four months of this year is credit-positive for Korea as it will help support the government’s stimulus packages, Moody’s Investors Service said on June 16.

In December, Korea’s credit ratings was upgraded from Aa3 to Aa2 by the rating firm, which changed its economic forecast from positive to stable, noting its stronger economic and fiscal fundamentals compared to China and eurozone countries. 

“The increased tax revenue reflects an increase in corporate profits and a rise in consumption, which indicates that the government’s policies to boost domestic demand to offset weak external demand are working. It is important given the Korean economy’s openness and dependence on China,” the agency said in a statement. 

Seoul‘s fiscal stimulus in the form of tax cuts and extra public spending in 2015 contributed to slightly improve domestic consumption, which in turn resulted in higher tax revenues in the January-April period, the statement said.

Corporate income tax revenues jumped 31 percent in the four months from a year earlier. Value-added tax income climbed 22 percent during the same period, Moody’s said, citing government data.

Largely affected by growing economic slowdown in China, however, Moody’s expected the country’s economy to “slow slightly” to 2.5 percent this year from a growth of 2.6 percent in 2015 and the previous year‘s 3.3 percent growth.

China remains Korea’s largest export destination, accounting for 26 percent of exports last year.

If consumer spending slows down in coming months, the government is set to announce additional stimulus programs for the second half of this year to support Asia’s fourth-largest economy.

By Jung Min-kyung (mkj1105@heraldcorp.com)