This year, the size of national taxes reduced through tax reductions and exemptions is expected to exceed 80 trillion won, setting a record as the "highest ever." However, the "national tax reduction rate," the ratio of national tax reductions to the amount of national taxes Korea's government is to collect in a year, appears likely to stay within the statutory limit for the first time in four years.
The Ministry of Finance and Economy said on the 31st that the Cabinet approved the "2025 tax expenditure basic plan."
According to the tax expenditure basic plan, this year's national tax reductions are expected to total 80.5 trillion won. They are likely to surpass again last year's estimated national tax reductions (76.5 trillion won), which had been assessed as the highest ever. The final confirmed figure for last year's national tax reductions will be set at the end of Aug.
This year's national tax reduction rate is projected at 16.1%. After dipping by 0.1 percentage point from 16.1% in 2024 to 16% in 2025, it is expected to turn upward again to 16.1% this year.
However, the statutory limit on national tax reductions appears likely to be observed for the first time in four years. The statutory limit is calculated by adding 0.5 percentage point to the average national tax reduction rate of the previous three years. Under the National Finance Act, the Minister of the Ministry of Finance and Economy should strive to ensure the national tax reduction rate does not exceed this statutory limit. The aim is to prevent the nation's finances from deteriorating due to excessive tax breaks.
This year's national tax reduction rate (16.1%) is expected to be below the statutory limit (16.5%). That contrasts with the past three consecutive years, when the national tax reduction limit was not observed: ▲ 2023 national tax reduction rate 15.8% (exceeding the 14.3% limit) ▲ 2024 16.1% (exceeding the 14.6% limit) ▲ 2025 16% (exceeding the 15.5% limit). However, this appears to be not because this year's national tax reductions were aggressively cut, but also due to the effect of previously elevated national tax reduction rates.
Meanwhile, the government decided to review tax expenditure from the ground up this year, abolish what is unnecessary and urgent, and pursue a redesign to enhance effectiveness. A Ministry of Finance and Economy official said, "If necessary, we will convert tax expenditure into fiscal expenditure, and we will introduce a principle of 'abolition when sunset recurs' to break away from the practice of repeatedly extending systems slated to sunset."
At the same time, it said it will efficiently operate tax expenditures so they can support growth — through measures such as ▲ designation of national strategy and new growth source technologies ▲ introduction of a domestic production promotion tax system ▲ introduction of the Public Growth Fund and a productive finance ISA ▲ strengthened tax support for companies moving into RE100 industrial complexes — and play roles in overcoming polarization and managing risks through ▲ development of plans to improve the EITC (earned income tax credit) ▲ tax exemption for the Youth Future Installment Savings ▲ stabilization of local real estate markets.
The Ministry of Finance and Economy will notify each ministry of the tax expenditure basic plan by today, receive each ministry's tax expenditure evaluations and proposals by the end of next month, and reflect them in the "2026 tax law revision bill" after inter-ministerial consultations.