Analysis of the 2024 Tax Expenditure Budget

Published on Oct., 31, 2023
Published by Second Tax Policy Analysis Division

    In 2024, it is projected that tax expenditures will amount to 77.1 trillion won, with the national tax reduction and exemption rate expected to be 16.3%, exceeding the statutory limit of 14.0% by 2.3%p. Additionally, when considering the re-estimated 2023 national tax revenue forecast from the Ministry of Economy and Finance in September, the 2023 national tax reduction and exemption rate is projected to be 15.9%, likely surpassing the statutory limit of 14.3% by 1.6%p. This marks the second consecutive year of exceeding the statutory limit.
   Although the national tax reduction and exemption rate is expected to exceed the statutory limit in 2024, the government has not taken any action to address this issue. To enhance the efficiency of the national tax reduction and exemption rate management, steps should be taken, including presenting a specific plan to the National Assembly and modifying the statutory limit formula to better adhere to the limit. Additionally, there is criticism that the government consistently extends the sunset provisions each year, prolonging the sunset deadline for 58 (81.7%) out of 71 items scheduled for 2023 without revising the system. Since this annual extension weakens the tax revenue base, it is crucial to enhance self-evaluations by ministries to prevent this and explore ways to strengthen sunset management and conduct in-depth assessments of items subject to active management.
   Furthermore, this report conducted an initial analysis on the effectiveness of the tax expenditure performance evaluation system to improve the efficiency of tax expenditure management. It highlighted concerns, including the exemption from evaluation in 21 out of 29 cases (72.4%) subject to preliminary feasibility study over the past five years and the absence of tax expenditure improvement plans based on the results of in-depth assessments. To tackle these issues, it was recommended to strengthen the justifications for exemption from preliminary feasibility studies and to establish a reporting procedure to the National Assembly for enhanced performance evaluation feedback. The report also emphasized the importance of enhancing the alignment between tax expenditures and fiscal spending to improve national fiscal management efficiency. It proposed the aggregate management of both national and local tax expenditures to identify and oversee fiscal aggregates associated with national tax expenditures.