Deficit of 912.5 Billion Won

As the economic recession goes into the long run, the tax revenue deficit is estimated at 912.5 billion won, the greatest amount since the foreign exchange currency crisis 1998.

Initially estimated as 1.25 trillion won, the issue of deficit national bonds increased to 2.53 trillion won when the autumn budget was announced.

Whereas, the amount of additionally charged taxes brought in by tax affairs authorities through tax investigation has greatly increased.

According to the “Report of the examination of revenue, expenditure budget under the jurisdiction of the Ministry of Finance and Economy” by the National Assembly’s Finance and Economy Committee on November 14, the total expected collected tax revenue, the total of domestic taxes such as income taxes and such taxes as traffic taxes, customs and liquor taxes, for 2004 is 121 trillion 156.1 billion won.

This is a 0.7 percent decrease from the initial target of 122 trillion 68.6 billion won.

There were three instances after the foreign currency crisis that the collected tax revenue was beneath the tax revenue target, 1998 (deficit of 691.6 billion won), 2001 (deficit of 106.3 billion won), and 2003 (deficit of 282.7 billion won).

Another source in the Ministry of Finance and Economy explained, “The absolute amount of the tax deficit is large but the ratio of the deficit to the total tax revenue is lower than that of the 1998 foreign currency crisis”.

Specifically, reflecting the long-term stagnation of the domestic demand market, the collection of indirect taxes such as value added taxes, special consumption taxes, stock exchange taxes, stamp taxes, liquor taxes and traffic taxes are expected to greatly fall short the targeted amount.

Especially in the case of special consumption taxes, the collected tax revenue is assumed to be lower than the target by 1 trillion 265.1 billion won (21.5 percent), at 4 trillion 627.8 billion won, value added taxes are expected to remain at 35 trillion 221.2 billion won, a 1 trillion 975.4 billion won (5.3 percent) decrease.

On the other hand, it was analyzed that direct taxes such as income taxes, corporation taxes, succession taxes and gift taxes are expected to exceed the target.

The increase in succession and gift taxes is a result explained by the upward adjustment of the national real estate standard market prices.

However the additionally collected taxes through tax investigation by the National Tax Service has greatly increased.

According to present affairs data of the Seoul Regional National Tax Service investigation bureau, in the case of investigation bureau 1, which undertakes domestic corporations, to the end of this October 1640 cases and 336.1 billion won in corporation taxes have been additionally charged, this is a 35 percent increase in number of cases and a 264 percent increase in amount compared to the same period of last year.

In the case of Investigation Bureau 3, which undertakes individual tax payers, they have investigated 2404 cases by the end of this September and additionally collected 148.8 billion won in income taxes, succession taxes, value added taxes, this is an increase of 18 percent and 79 percent for tax collection cases and amount respectively.

Jae-Seong Hwang Yong Park jsonhng@donga.com parky@donga.com