SEOUL: South Korea’s National Tax Service (NTS) has confirmed that it missed its revenue target in 2014 by 4.4 percent. In fact, the NTS collected KRW195.7 trillion (USD178.5bn) last year, an increase of KRW5.5 trillion on 2013, but still KRW9.2 trillion less than budgeted for the year.
In the midst of an argument as to whether the Government will need to raise taxes to fund President Park Geun hye’s welfare reforms, Shortfalls in tax revenue experienced in South Korea over the past few years have been largely caused by the country’s sluggish economic recovery, which has primarily affected collections of corporate taxes due to reduced business profitability. In addition, falls in the KRW exchange rate and commodity prices are said to have caused lower collections of value-added tax and customs duty. In spite of continuing concerns in that respect, NTS’s tax revenue target for 2015 has still been raised by 7.4 percent over last year’s collections, to KRW210.1 trillion.
The agency confirmed that, in order to reach that goal, it will have to rely on tax administration and compliance improvements to tackle South Korea’s underground economy in particular. However, with doubts already being expressed as to whether those efforts will be sufficient, it has been suggested that a choice will need to be made between higher taxes – in particular a rise in corporate tax rates – to fund the President’s welfare reforms, or a low tax burden with reduced public welfare commitments.
