Analysis of FY 2016 Tax Revenue Settlement
The Korean economy has recently shown an upward trajectory, mainly on the back of the recovering global economy. This economic trend has spurred a rapid expansion of tax revenue. Tax revenue grew by 11.3% year-on-year in 2016, more than double the nominal growth rate of 4.7%. This growth was mainly driven by robust increases in income tax revenue, as well as the rebound of corporate tax revenue from setbacks and the upbeat trend in other revenues related to the property market boom. However, the materialization of interest rate hikes in the future may dampen the asset market, and this can reverse the current favorable conditions of tax revenue.
This report offers an analysis of the FY 2016 tax revenue results and the reasons behind the increases and decreases of revenues by tax item. The analysis also includes an in-depth examination of tax revenue growth, which is faster than economic growth. Moreover, it addresses the cause of the growing gap between budgets and final accounts, the ensuing negative impact on financial operation, and suggestions for improvement. Lastly, this report also examines how the expansion of tax revenue has changed tax burdens by income type and bracket.
The main findings of the analysis are as follows:
● The FY 2016 tax revenue increased by KRW 24.7 trillion (or 11.3%) year-on-year to KRW 242.6 trillion, exceeding the governmental supplementary budget by KRW 9.8 trillion.
● The revenue growth was driven by cyclical factors such as improved corporate performance and the property market boom, as well as institutional factors.
● The gradual economic recovery, including improved corporate profits and favorable asset market trends, led to higher tax revenue.
● The contributions driven by institutional factors included the enhanced progressive income tax system and income verification rate, which spurred the expansion of tax revenue along with positive economic trends like rises in corporate profits and wages.