Tax Expenditure Set at 80.5 Trillion Won This Year... National Tax Reduction Rate Expected to Meet 'Statutory Limit' for First Time in 4 Years

Only Large Corporations See Tax Relief Share Rise to 16.5%
Tax Benefits for High-Income Earners Also Increase by Over 1 Trillion Won

The government's tax expenditure, which includes tax exemptions and deductions, is expected to exceed 80 trillion won this year. While the total amount of tax reductions will increase by more than 4 trillion won compared to last year, the proportion of tax benefits enjoyed by large corporations is expected to be the only one to rise, and the amount of tax reductions for high-income earners is also projected to grow by over 1 trillion won. For the first time in four years, it appears that the government will comply with the statutory limit on the national tax reduction rate, which had previously been criticized for being exceeded.

On March 31, the government held a cabinet meeting and approved the "2026 Basic Plan for Tax Expenditure" containing these details. According to the expenditure budget, the estimated amount of national tax reductions for 2026 is 80.5277 trillion won. This represents an increase of 4.0558 trillion won (5.3%) compared to last year's estimate of 76.4719 trillion won. The national tax reduction rate is also expected to rise from 16.0% last year to 16.1% this year, an increase of 0.1 percentage points.

However, the statutory limit for the national tax reduction rate, which is a key indicator of fiscal soundness, is expected to be met. The statutory limit for this year is 16.5%, which is 0.4 percentage points higher than the government's forecasted rate of 16.1%. If the forecasts hold, the government will shed the "statutory limit violation" label that has persisted for three consecutive years since 2023, for the first time in four years. The statutory limit is calculated by adding 0.5 percentage points to the average national tax reduction rate of the previous three years.

A closer look at the breakdown of national tax reductions shows a notable increase for high-income earners compared to last year. The amount of tax reductions for high-income earners (those with annual salaries over 78 million won) will rise from 17.003 trillion won last year to 18.0369 trillion won this year, an increase of 1.0366 trillion won (6.1%). This is mainly due to increases in social insurance-related deductions (up 300 billion won), income deductions such as credit card use (up 100 billion won), and tax credits for pension accounts (up 100 billion won).

By company size, tax reductions are increasing for both small and medium-sized enterprises (SMEs) and large corporations. However, only large corporations are expected to see their share of total tax reductions increase, from 15.7% to 16.5%. The shares for SMEs, mid-sized, and other companies are expected to remain steady or decrease. The increase in the proportion for large corporations is mainly attributed to expanded tax benefits for investment and research & development (R&D), which have grown due to economic recovery and support for advanced strategic industries.

This year, the government has announced a policy direction of "fundamental review of all tax expenditures." Items that are either ineffective or unnecessary will be boldly abolished or converted to regular budget programs. In contrast, support will be concentrated on areas that make a significant contribution to economic vitality. Notable examples include the "Domestic Production Promotion Tax System" to support companies returning to Korea and the "Productive Finance Individual Savings Account (ISA)" to help citizens build assets. Additionally, the government plans to introduce a principle of "abolishing systems upon expiration" to improve sunset clause management and strengthen the overall cap on national tax reductions, aiming for more rational administration.

This content was produced with the assistance of AI translation services.