Tax shortfall hits record high

South Korea’s Ministry of Strategy and Finance said Tuesday that the national tax revenue fell about 11 trillion won ($10 billion) short of the government’s target last year due to decreased corporate tax and value-added tax earnings.

Although Korea’s tax revenue increased 3.6 trillion won to 205.5 trillion won last year, it was still 10.9 trillion won less than its target of some 216 trillion won, noted the Finance Ministry, which closed its books on gross earnings and spending for fiscal 2014.

The shortfall marked a record high in the government’s third straight year of tax revenue deficits. It was higher than the shortfall of 8.6 trillion won in 1998 during the Asian financial crisis.

The ministry attributed the increased tax revenue shortfall mostly to decreased corporate tax earnings stemming from weak corporate performance. It noted that KOSPI-listed companies saw their pre-tax profits fall more than 10 percent over the last year.

“Weak corporate earnings led to weak corporate tax revenue, while weak domestic consumption and a strong won led to decreased value-added tax and tariff earnings,” said Noh Hyeong-ouk, deputy finance minister for fiscal affairs.

“In addition, low interest rates and low stock market transactions led to decreased interest income tax and equity transactions tax revenues.”

Korea’s gross tax revenue reached 298.7 trillion won last year, up 5.8 trillion won from 2013, but below the target of 309.7 trillion won. Gross spending reached 291.5 trillion won last year, accounting for more than 90 percent of the country’s planned expenditures.

After excluding the 8 trillion won budget that was carried over to this year, the government recorded three consecutive years of tax revenue deficit, which reached 800 billion won last year. It also had an unused budget of 17.5 trillion won last year, down from 18.1 trillion won a year ago.

The Finance Ministry predicted the national tax revenue could reach 221 trillion won on the back of fiscal stimulus measures. Last year, the Bank of Korea lowered its key base rate twice to support the government’s expansionary policy.

“Although we had a deficit last year, we can achieve the goal this year,” said the deputy finance minister.

“The economy still faces downside risks, but we will step up efforts to achieve the target by pursuing economic reforms and implementing stimulus measures.”

By Park Hyong-ki (hkp@heraldcorp.com)