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South Korea’s gross revenue shortfall reaches $10b in 2014

South Korea’s gross revenue shortfall reaches $10b in 2014

SEUOL: South Korea’s gross tax revenue fell 11 trillion won ($10 billion) short of forecast in 2014,as slower-than-predicted growth affected the collection of dues.

The finance ministry, which completed calculations on gross revenue and expenditures for the 2014 fiscal year, said tax earnings came to 298.7 trillion won. This represents a gain of 5.8 trillion won from the year before but still below the budget target of 309.7 trillion won. Tax revenue amounted to 205.5 trillion won, 10.9 trillion won shy of the goal. In non-tax related areas, state revenue reached 93.2 trillion won, 100 billion won short of expectations.

The 10.9 trillion won deficiency in 2014 marked the third year in a row that tax earnings fell short of the budget target. It marks the largest annual tax revenue shortfall to date, exceeding 8.5 trillion won reported for 2013. “The gross shortcoming in state revenue is the result of weak growth that impeded corporate earnings, while poor domestic demand and the appreciation of the Korean won also hurt the collection of value-added taxes and import duties,” said Noh Hyeong-ouk, deputy minister for fiscal affairs. Lower interest rates and sluggish stock market transactions further affected taxes slapped on financial interest earnings and those on the selling and buying of shares, he said.

Corporate taxes for last year reached 42.7 trillion won, 3.3 percent less than the goal of 46 trillion won. This is 2.7 percent smaller than 43.9 trillion won collected the year before. Income tax collected reached 53.3 trillion won, with others such as value-added taxes and import duties amounting to 57.1 trillion won and 8.7 trillion won, respectively. These numbers are all short of budget expectations. Earned income tax reached 25.4 trillion won, which is 500 billion won more than was forecast in the budget plan. This increase comes as 530,000 new jobs were created last year and those with jobs got paid more. Corporate earnings closely reflected drops in earnings by businesses that stood at 219.2 trillion won last year, down from the 229.9 trillion won tallied in 2013.

“Since the tax rate for companies remained unchanged compared to 2013, the drop is attributed to weak performance and less taxable earnings,” the senior official said. The ministry said the country’s gross expenditures totaled 291.5 trillion won last year, which represents 92 percent of the government’s planned 317 trillion won in spending. Total expenditures increased by 5.1 trillion won compared to 2013.

For 2015, the ministry said its tax revenue target of 221.1 trillion won can be reached if growth accelerates and expansionary policy measures start to bear fruit. A recent hike in cigarette prices could add 1.8 trillion won to the intake, ministry officials said. The government has been trying to cope with tax revenue shortfalls for some time, because such developments can weaken the country’s ability to deal effectively with sudden fiscal developments and limit spending on key areas.