Unavoidable Reduction of National Tax Revenues Budget

This year, securing of Tax revenues has been under the emergency duty orders due to increasingly stronger Korean Won.

It is forecasted that the national tax revenues must be cut decreased by KRW 103,649 billion this year, if KRW/USD rate keeps the current level.

National Tax Service (NTS) announced on July 26 “We collected the inland tax of KRW47 trillion and 601.5 billion, adding the inland tax on domestic portion of KRW 3,898.3 billion such as an income tax, corporation tax and value added tax, and the inland tax on imports of KRW 9,503.2 billion such as the tax added-value and special consumption tax for the first half of the year (Jan. ~ Jun.).

It is equivalent to 49.7% of the revenue budget of the year (KRW95 trillion and 779.8 billion) managed by the National Tax Service.

In the report of Finance & Economy Committee, Son Yeong-Rae, Commissioner of the NTS said that day, “Comparing with the progress rate of tax revenue of the first half of the last year (51.7%), this year shows the low tax revenue progress. Accordingly, we are not sure of the achievement of the revenue budget.”

The collected tax amounts of NTS are KRW 3,194 billion equivalent to 44.0% of the revenue budget of this year (KRW 7,253 billion). These amounts are smaller than 44.2% of tax collection progress rate of the first half of the last year.

Even though the domestic economy has been recovered for the first half of the year, tax revenues have decreased. It is because the imports amount did not reach to the estimated amounts and the collection of inland tax on the import was especially low.

As KRW 21,822.8 billion of estimated revenue budget of the year, the tax revenue progress rate of inland tax on imports for the first half of the year is 43.9%, not reached to 50.1% of the first half of the last year.

The remaining inland tax on imports of 56.1% must be collected in the second half of the year(July∼December). However, its prospects are gloomy.

The Minister of Finance and Economy (MOFE) assumed that the Korean Won is KRW1,300 against US dollar, when forecasting the inland tax on imports. However, the rate of Korean Won keeps KRW 1,170 equivalent to 90%. The amount of inland tax on imports decreases at the same rate when the exchange rate decreases because it multiplies the imports amounts indicated in US dollar by the exchange rate of Korean Won and tax rate.

Officials of NTS said “Even though the average KRW/USD rate was 1310 won in the imported products for the first half of the year, we just collected 43.9% of inland tax budgets on imports. If the exchange rate is not returned to KRW 1,300 or the imports amount doesn’t increase largely, we cannot achieve the goal of the year.”

As the rate of corporation tax has decreased by 1% over the last year and the interest rate has decreased, the interest income tax will decrease. There is no factor that the inland tax on the domestic portion will increase as much as it is enough to set off the decrease of inland tax on imports.

iam@donga.com