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S. Korea likely to collect larger tax revenue this year amid economic recovery

All News 10:57 May 31, 2021

SEOUL, May 31 (Yonhap) -- South Korea is likely to collect larger-than-expected tax revenue this year, potentially securing ammunition to finance another extra budget that could be under review to help underpin an economic recovery.

The country may be able to collect more than 300 trillion won (US$269 billion) in tax revenue this year, up around 17 trillion won from the government's earlier forecast of 282.7 trillion won, according to government and parliamentary officials.

This, if realized, would also mark an increase of more than 15 trillion won from 285.5 trillion won in tax revenue collected last year.

Last year, the country saw tax revenue fall 7.9 trillion won as corporate tax earnings declined amid the pandemic. But in the first quarter of this year, the government collected 88.5 trillion won, up 19 trillion won from a year earlier.

Anticipation for larger tax revenue comes as capital gains tax income will likely increase amid a boom in the housing and stock markets. Corporate tax income is also expected to rise as firms have logged robust earnings amid an economic recovery.

The South Korean economy is on a recovery track on robust exports of chips and autos. The Bank of Korea (BOK) last week revised up its 2021 growth outlook for Asia's fourth-largest economy to 4 percent from its earlier estimate of 3 percent.

This computerized image illustrates an increase in tax revenue. (Yonhap)

This computerized image illustrates an increase in tax revenue. (Yonhap)

The larger-than-expected tax revenue could finance another round of supplementary budget in the second half of the year.

Talk of another extra budget emerged from the ruling party after President Moon Jae-in said last week the country needs to leave the door open for additional fiscal support.

Moon said at a national fiscal strategy meeting that the country needs to maintain its expansionary fiscal policy for the time being to cope with the fallout of the pandemic despite the growing national debt.

The finance ministry said Friday it plans to take into account tax revenue situations and demand for increasing public finances before it decides on whether to draw up another extra budget.

The government officially denied reports that it is considering creating another round of emergency COVID-19 relief funds, but expectations are growing that it would draw up a fresh supplementary budget.

South Korea created an extra budget of 14.9 trillion won in March to finance the 20.7 trillion won relief aid for smaller merchants and vulnerable people hit hard by the pandemic.

Since last year, the country has drawn up five rounds of extra budgets totaling 82 trillion won to tackle the economic fallout of the COVID-19 pandemic.

With the latest supplementary budget, the country's government debt is expected to reach 965.9 trillion won this year. The debt-to-GDP ratio will likely reach 48.2 percent.

Last year, the country's national debt grew by the largest-ever amount of 123.7 trillion won to a record high of 846.9 trillion won.

S. Korea likely to collect larger tax revenue this year amid economic recovery - 2

The ruling Democratic Party is studying the idea of providing emergency cash handouts to all households in around September. The move is aimed at boosting consumption before the country achieves its goal of reaching herd immunity by November.

But a controversy over massive relief funds is expected to heat up again as fiscal authorities have opposed universal payment of emergency funds, citing debt burdens.

The country offered 14.3 trillion won in one-off stimulus checks to all households in May last year. It has so far provided three rounds of targeted support to smaller merchants and vulnerable groups.

Despite an upbeat economic growth outlook, the economic recovery remains uneven across sectors, with income gaps between the haves and have-nots deepening, known as a K-shaped recovery.

sooyeon@yna.co.kr
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