South Korean Government Expects Surge in Corporate Tax Revenue as Company Performance Rebounds

South Korean Government Expects Increase in Corporate Tax Revenue as Company Performance Recovers

The South Korean government anticipates a rise in corporate tax revenue in the second half of the year due to the expected recovery in company performance. Despite concerns about insufficient tax revenue, the government believes that the implementation of key tax reduction policies and the positive outlook for the business sector will help mitigate the risk of a decrease in tax revenue.

Government Budget and Revenue Shortfall

According to the Ministry of Economy and Finance, this year’s national tax revenue budget is set at 367 trillion 4,000 billion won, which is 33 trillion 1,000 billion won lower than the previous year’s estimate. The government faced a significant tax revenue shortfall last year, primarily attributed to a shortage of more than 25 trillion won in corporate tax revenue. The actual collection of corporate tax revenue fell short of the projected 105 trillion won, amounting to only 80 trillion won.

Expected Increase in Corporate Tax Revenue

The government has estimated an increase of 77 trillion 6,000 billion won in corporate tax revenue compared to the previous year. This estimation is based on the anticipation of a recovery in key industries, such as the semiconductor sector, which is expected to contribute to the growth of corporate tax revenue. Additionally, the removal of the mid-year prepayment burden on corporate taxes is also expected to boost tax revenue. The prepayment system allows companies to pay half of their annual corporate taxes in August, providing flexibility in tax management.

Impact of Mid-Year Prepayment

Last year, the mid-year prepayment system resulted in significant refund amounts, reaching several trillion won. However, this year, it is expected that the refund amount will decrease as more companies calculate and pay taxes based on their financial statements in the first half of the year. Major companies like Samsung Electronics and SK Hynix have utilized the mid-year prepayment system. Some experts believe that the government’s conservative estimation of corporate tax revenue this year takes into account these factors.

Concerns and Government Response

There are concerns about the government’s tax reduction policies and cash support measures in light of the expected decline in tax revenue. However, the government emphasizes that the tax policies aim to improve areas with relatively small tax revenue decline and support investment, livelihood stability, and asset formation. The overall impact on tax revenue needs to be evaluated within the context of the interaction between domestic investment, consumption recovery, and macroeconomic factors.

Positive Outlook for Medium-Sized Enterprises

According to a recent survey by the Korea Federation of Medium-sized Enterprises, 58.6% of medium-sized companies consider corporate tax reduction as the most helpful policy for expanding investment. Despite challenging economic conditions, 62.5% of medium-sized companies have either maintained or increased their investment scale compared to the previous year. The main factors driving investment expansion include business expansion, upgrading and replacing aging facilities, and venturing into new business areas. However, medium-sized companies also face obstacles such as difficulties in raising funds, shortage of skilled workers, and various regulations.

The Korea Federation of Medium-sized Enterprises hopes that the government will continue to implement effective support measures, including corporate tax reduction, to further stimulate investment and promote economic growth.