|Senior officials of the Ministry of Economy and Finance give a briefing on re-estimated tax revenue for this year at the Government Complex in Sejong, Monday, Yonhap|
Economic uncertainties add to inaccurate tax revenue estimation
By Yi Whan-woo
Protracted economic uncertainties are adding to concerns over the government's inaccurate estimation of yearly tax revenue, as the tax revenue for 2023 is expected to be 59.1 trillion won ($44.6 billion) less than the initial forecast made by the government.
Announced by the Ministry of Economy and Finance, Monday, the forecast error of 59.1 trillion won marks a record-high gap between the estimated and actual, foreseeable tax revenue since relevant data began to be compiled.
The overestimated and foreseeable tax revenue ― 400.5 trillion won against 341.4 trillion won ― subsequently results in a record-high 17.3 percent shortfall compared to the initial prediction.
The finance ministry explained that pandemic-induced global challenges, such as high inflation, high interest rates and supply chain bottlenecks, are making it trickier than in the past to correctly estimate the amount of tax revenue.
It noted the aforementioned challenges disrupted business operations, and in turn, resulted in less-than-expected incoming corporate tax, a key source of the government's revenue.
It also noted the sluggish housing market has resulted in less-than-expected property taxes being collected.
The 2023 forecast error in tax revenue follows previous errors in 2021 and 2022.
But back then, the government underestimated tax revenue, meaning it collected more taxes than it expected.
In 2021, the tax revenue amounted to 344.1 trillion won, against the 282.7 trillion won estimation.
A year later, the tax revenue totaled 395.9 trillion won, against the 343.4 trillion won estimation.
"An overestimation in tax revenue is more problematic because the government will fall short of budget and planned projects will stagger," said Park Ki-baek, a University of Seoul professor on taxation studies.
He viewed the overestimation as "especially problematic considering the government, along with the private sector, needs to do its part to spur growth in the midst of an accelerated economic growth slowdown."
"Of course, minimizing forecast errors in tax revenue is not an easy job, but the government still needs to make efforts to reduce errors as it can affect economic growth," the professor added.
The finance ministry said it will consult outside experts, including those from the International Monetary Fund (IMF) and the OECD to reduce tax revenue forecast errors.
Nevertheless, the ministry argued that its average error rate of 11.1 percent from 2020 to 2022 is comparable to the 8.9 percent of the United States, 9 percent of Japan, 10.6 percent of Canada, and 12.7 percent of the United Kingdom.