The government is projected to provide 78 trillion won in tax reductions this year. This amount represents a 9.2% increase over last year's tax reduction forecast. The ratio of tax savings, which is the percentage of taxes that the government will forgo from corporations and individuals out of the total taxes it needs to collect in a year, is expected to exceed the legal limit for the third consecutive year.
The Ministry of Economy and Finance held a Cabinet meeting on the 25th and noted that it approved the '2025 tax expenditure basic plan.' The tax expenditure basic plan is a 'plan for the operation and limitation of tax preferences' established annually by the Ministry of Economy and Finance under the 'Restriction of Special Tax Provisions Act,' which is then notified to each ministry after review by the Cabinet.
According to the approved tax expenditure basic plan, the forecast for tax reductions this year is 78 trillion won. This marks an increase of approximately 6.6 trillion won compared to last year's estimate (71.4 trillion won) and is the largest amount on record based on the forecast.
This year's ratio of tax savings is expected to be 15.9%, exceeding the tax reduction limit of 15.6%. The legal limit is calculated by adding 0.5 percentage points to the average ratio of tax savings over the last three years. According to the National Finance Act, the Minister must ensure that the ratio of tax savings does not exceed the legal limit to prevent excessive tax reductions from undermining the state finances.
The excess of the tax reduction limit is expected to continue for three consecutive years from 2023. In 2023, the ratio of tax savings was 15.8%, exceeding the tax reduction limit at that time (14.3%) by 1.5 percentage points, while last year's ratio of tax savings was also 16.3%, surpassing last year's tax reduction limit (14.6%) by 1.7 percentage points. This is why there are criticisms that 'the purpose of setting a limit is being undermined.'
The Ministry of Economy and Finance stated, "Structural expenditure has been increasing at an average annual rate of 10.8% over the past 10 years, rising from 6.1 trillion won in 2014 to 16.8 trillion won last year," and projected that if the National Pension Act is amended to raise the insurance rate from 9% to 13% from next year through 2033, structural expenditures related to pension insurance deductions will increase by about 1.6 trillion won.
According to the Ministry of Economy and Finance, the expiration deadlines for 105 tax expenditure items will arrive this year. Among these, for the 23 tax expenditures with annual reductions exceeding 30 billion won, the ministry will conduct mandatory in-depth evaluations to analyze the results and prepare improvement plans. Examples include special tax reductions for small and medium-sized enterprises, integrated employment tax credits, and income deductions for credit card usage. The ministry will also conduct voluntary in-depth evaluations on four tax expenditures that require thorough analysis and assessment for effective management of tax expenditures.
Additionally, the Ministry of Economy and Finance plans to conduct a feasibility study on the tax credits for purchasing carbon-free energy, considering the necessity and urgency of the system's introduction. Results from the feasibility study and in-depth evaluation will be reflected in the government's tax law revision proposal.
Meanwhile, the Ministry of Economy and Finance announced that it will focus on operating efficient tax expenditures aimed at strengthening tax support for core industries, maintaining tax support for livelihood stability and economic recovery, and enhancing responses to structural issues such as local extinction and low birth rates. It will also discuss strengthening tax incentives for corporations' research and development, maintaining tax support in the national strategic technology sector, promoting value enhancement through tax support, and instituting tax measures to revitalize the local economy and support balanced national development.
The Ministry of Economy and Finance will also actively streamline existing tax expenditures, such as reductions and abolitions, the duplication of budget support, and the effectiveness of new tax systems when they are established. In-depth assessments of tax exemption and reduction systems that are nearing expiration will be conducted, along with evaluations based on voluntary assessments by ministries. Furthermore, the ministry will pursue strengthened alignment between tax expenditures and financial expenditures and enhance accountability among ministries to ensure effective performance management of tax expenditures.
By the end of March, the Ministry of Economy and Finance will notify each ministry of the tax expenditure basic plan and will receive each ministry's tax expenditure evaluation reports and proposals by the end of April for consultation and to incorporate them into the '2025 tax law revision proposal.'