Samsung Electronics and SK Hynix are expected to pay zero corporate taxes in South Korea this year, raising concerns about a potential tax revenue shortfall. The gasoline tax cut, now a permanent fixture, coupled with sluggish domestic demand, threatens revenues from other tax categories.

The upcoming release of March’s national tax revenue, slated for Apr. 30, carries significant weight as it reflects corporate income tax based on the previous year’s performance. Based on the average progress rate over the past five years, the early warning system could signal trouble.

Samsung Electronics' headquarters in Seocho-gu, Seoul, South Korea./News1

Policymakers are already apprehensive about the March progress rate, which is expected to fall below the norm (25.9%) due to this year’s corporate tax slowdown. Samsung Electronics and SK Hynix are major examples of forgoing corporate taxes this year. Even the modest interim payments they made last year may be refunded.

Last year, corporate tax revenue totaled $58.4 billion (80.4 trillion won). This year, the government’s projection is $56.3 billion (77.6 trillion won). Achieving the previous year’s $58 billion (80 trillion won), assuming it solely comprised Samsung Electronics’ declared corporate tax and $3.1 billion (4.3 trillion won) in attributable corporate tax for 2022, seems challenging. While sectors like the automobile industry, including Hyundai Motor and Kia, may offer supplementary corporate tax revenue due to their robust performance, the overall decline in corporate tax revenue is worrisome, particularly with KOSPI-listed companies experiencing a 24% drop in operating profits last year.

The prevailing sentiment suggests limited revenue avenues, not only within corporate taxes but also across other tax categories. Examples include transportation, energy, and environmental taxes, which have been prolonged indefinitely owing to the gasoline tax reduction.

The Ministry of Economy and Finance expects transportation, energy, and environmental tax revenues to reach $11.1 billion (15.3 trillion won), a 42% increase from last year. This projection hinges on the assumption of the gas tax cut’s termination, and it could grow if the extension continues.

Jeong Jung-hoon, head of the Ministry of Economy and Finance's taxation department (third from left), announces the results of the 2023 tax revenue re-estimation and fiscal response at the briefing room in the Central Office of the Government Sejong Building in Sejong, Sejong City, on Sep. 18, 2023./News1