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| A signboard at a gas station in Seoul shows gasoline prices at 1,695 won ($1.29) per liter, diesel prices at 1,595 won and premium gasoline at 1,899 won, Monday. Yonhap |
Yoon administration in dilemma as tax revenue shortfall weighs on economy
By Yi Whan-woo
The government is considering gradually scrapping its years-long tax cut on fuel, in a desperate bid to counter a massive shortage of tax revenue that could hinder the country's economic recovery, according to sources familiar with the matter, Monday.
The sources said the maximum legal cap for the cut on gasoline taxes may stay at the current 25 percent, while the tax cut on diesel could be lowered from the current 37 percent to 25 percent.
Sources also said that another option may be to lower the maximum legal cap for the tax cut for both gasoline and diesel to a range of between 15 to 20 percent.
"These are two possible scenarios that can be adopted as an extended measure concerning the fuel tax cut," a source said, noting that the current tax cut scheme is set to expire at the end of April.
The fuel tax cut was first implemented in the pandemic-stricken year of 2020 to lessen the economic burden on people's livelihoods. It has since been extended every six months as pandemic-induced inflation has continued to weigh heavily on the cost of living.
One of the sources added that the government may eventually terminate the tax cut scheme this year, a measure through which it can secure an estimated 5 trillion won ($3.79 billion) in tax revenue.
The Ministry of Economy and Finance did not confirm whether it plans to withdraw the fuel tax cut policy.
However, various sources all agree that it is a matter of time before the Yoon Suk Yeol administration terminates the policy.
They argue that the government does not have many options to squeeze more taxes out of citizens, while maintaining its signature belt-tightening policy aimed at lessening the tax burden on businesses and also reducing the national debt. These are all part of Yoon's market-driven economic vision.
Sources pointed out that tax revenue in the first two months of 2023 stood at 54.2 trillion won, down 22.5 percent from a year earlier.
The amount of taxes collected during the cited period accounted for 13.5 percent of the government's yearly target of 400.5 trillion won for 2023. Such a rate of tax collection is well behind the annual average of 16.9 percent seen over the past five years.
Accordingly, the shortfall in tax revenue is estimated to reach about 20 trillion won in 2023, under the assumption that every penny of tax is collected as planned between March and December.
The shortfall has been accelerated by sluggish exports that have led to a decrease in corporate earnings and the amount of taxes collected from businesses.
Corporate tax is the government's second-highest source of taxable income after income tax.
Income tax accounted for 128.7 trillion won of the government's 2022 tax revenue, which stood at 395.9 trillion won, while corporate tax accounted for 103.6 trillion won.
The tax revenue shortage is also driven by the housing slump and the current unrest in the stock market.
For instance, the amount of capital gains taxes fell 4.1 trillion won year-on-year in the first two months of 2023 and the aggregate value of stocks traded in January decreased to 262.8 trillion won from 413.1 trillion won a year before.
The troubled tax collection scheme is anticipated to increase obstacles for the Yoon administration's economic recovery plan.
Under the plan, the government hopes to put the ailing economy back on its feet in the second half of this year. It decided to frontload 65 percent of its 2023 budget in the first half of the year to revitalize the economy.
An economist from Myongji University urged the government to think again regarding its belt-tightening policy.
"It is becoming increasingly necessary for the government to intervene in the economy instead of leaving it in the hands of the private sector," Myongji University economics professor Woo Seok-jin said. "The government should try to find a way to secure taxable income if it wants to improve its financial soundness."
