South Korea's Finance Ministry is reviewing cutting tax exemptions and other tax benefits allowed to companies and individuals to make up for an expected large tax shortfall this year and meet an increase in welfare spending, government officials said Sunday.
The ministry last year had announced a tax code revision in which it said it would not raise tax rates but drew criticism by increasing the tax burden on millions of people by reducing benefits and exemptions starting this year, according to South Korea's (Yonhap) News Agency.
According to the officials, the government collected a total of 74.6 trillion won about (US$73.9) in taxes through April this year, which accounts for some 34.4% of its estimated tax revenue of 216.5 trillion won for the year.
The country's fiscal deficit reached nearly 4 trillion won during the first four months of this year but may widen to 10 trillion won for the whole year due to unfavorable economic situations, they said.
Asia's fourth-largest economy has been on a recovery path, but recently it is feared to relapse into a soft patch following April's ferry disaster and a stronger local currency.
The Bank of Korea, the country's central bank, is widely expected to trim its economic growth outlook for the year, citing a slump in domestic demand. The central bank earlier forecast a 4% expansion for the year.
Both private and state-run think tanks have already lowered their growth projections for the year. For one, Hyundai Research Institute adjusted its 2014 gross domestic product growth projection to 3.6 from 4%, while the Korea Institute of Finance lowered its annual forecast to 4.1% from 4.2%.
Also, the government is considering revamping tax deductions for companies related to hiring and investment, they said.
Last year, a total of 1.38 trillion won in tax deductions was awarded to credit card holders, and local companies paid 1.85 trillion won less in taxes in return for maintaining a decent level of hiring and facility investments.
The government is trying to raise the necessary money by means that include regulating the underground economy and cracking down on tax evasion, which it expects will expand its revenue base.