NABO Fiscal Estimates & Tax Issues (Issue. 19)

Published on May 27, 2022
Published by Estimates and Tax Coordination Division

I. Fiscal Estimation & Tax Trends
 ·(Review of fiscal demand for legislative bills approved in Q1 of 2022) Of the 48 legislative bills approved in Q1 of 2022, 14 (29.2%) are subject to fiscal enforcement by state and local governments, thus their fiscal standing will be affected afterwards. Implementation of 8 bills, to which an estimation can be made, is expected to result in an annual expenditure increase of 12.2 billion won on average over the next 5 years (2022~2026).
 ·(Total revenue performance and trends in Q1 of 2022) Total revenue in the first quarter of 2022 was 170.4 trillion won, an increase of 18.2 trillion won (12.0%) from the same period in the previous year (152.1 trillion won). Such performance was possible due to an increase in tax revenues related to income and consumption driven by a swift economic recovery, and positive asset-related revenue numbers following an increase in asset prices.
 ·(Government debts and sovereign bond issuance trends in Q1 of 2022) The government debt (central government) in the first quarter of 2022 was 981.9 trillion won, of which the balance of national treasury bonds was 885.7 trillion won, an increase of 42.0 trillion won compared to the end of 2021. In the first quarter of 2022, the cumulative issuance of national treasury bonds was 53.3 trillion won, and the cumulative deficit-financing in general accounting was 28.0 trillion won.

Ⅱ. Fiscal Estimation & Tax Analysis
 ·(Analysis of the all-day day care system and estimation of fiscal demand) Fiscal demand required to add and expand day care facilities was estimated, because although care services are provided pursuant to the all-day day care system establishment and operation policy announced in 2018, there is still overcrowding and excess demand for day care facilities. It is estimated that the total annual average fiscal demand for the next five years will range between 1.6192 trillion won with the current state maintained and 1.9395 trillion won with the recommended standard number of users and demand met simultaneously.
 ·(Analysis of legislative trends and fiscal demand related to the expansion of political rights) With reference to the proposed「Partial Amendments to the Public Official Election Act」, fiscal demand for the expansion of political rights, such as the installation of additional advance polling stations and the provision of sign language guides for those with hearing disabilities, was examined. It was estimated that additional installation of advance voting stations would result in an annual average of fiscal demand between 4.4 billion and 10.6 billion won over the next five years, while sign language provided for the hearing impaired would add an annual average fiscal demand of 5 billion won over the next five years, depending on the scenario.
 ·(Analysis of the effect of different approaches to alleviate tax burdens caused by housing property taxes) As home property taxes (gross real estate tax, property tax) in 2021 are expected to increase in line with high growth rates of official housing prices, various measures to alleviate the tax burden are being proposed. Analysis of the effect on tax revenue as of 2022 from each of the major tax burden relief measures currently being proposed indicates that a reduction effect between 0.39 trillion won and 3.15 trillion won is expected.
 ·(Issues and measures toward improvement of the tax expenditure management system: focusing on local tax expenditures) At present, as there is no mechanism available to manage tax expenditures (national and local taxes) on the aggregate level in terms of national finances, improvement measures were ascertained to better control national and local taxes with a view toward enhancing tax expenditure management. In the long term, managing tax expenditures in an aggregate manner needs to take place at the national level by putting in place an integrated management system for national and local tax expenditures.

 
Ⅲ. Estimations & Tax Issues
 ·(Recent discussions on the digital tax system) At present, the OECD is amending related laws and regulations to introduce a digital tax system in 2023, and preparing detailed taxation guidelines necessary for the ratification of relevant multilateral agreements. In this regard, the current OECD-announced Model Rules were explained with a focus on the taxation system. Of the Model Rules as part of the digital tax system, a global minimum tax conflicts with the taxation provisions applied to specific foreign corporations in Korea, thus the digital tax system, with a new and complex taxation mechanism, might present a burden for businesses subject to the system as to their acceptance to cooperate with certain issues, such as tax returns.

Ⅳ. Tax and Fiscal Indicators at a Glance
  This section consists of charts and tables visualizing tax and fiscal indicators including total expenditures and total revenue; a timeline of fiscal balance; national tax revenue, non-tax revenue, the public’s burden ratio, tax burden ratio, income tax ratio, corporate tax ratio and value-added tax ratio.