Tax Revenue Forecasts Far from Reality... Average Annual Error of 51 Trillion Won a Year Over Four Years Since 2021

BAI Releases Audit Findings on Fiscal Revenue Management
National Assembly Review Bypassed to Cover Tax Shortfalls Under the Yoon Administration
Model Flaws Accounted for 81% of Corporate and Capital Gains Tax Forecast Errors
Tax Law Changes Omit

The government used tax revenue forecasting models that were disconnected from actual economic conditions, resulting in an average annual forecasting error of 51.5 trillion won over the past four years. For corporate tax and capital gains tax, which had particularly large errors, the main cause was found to be flaws in the forecasting models themselves rather than economic fluctuations. The government was also found to have mobilized more than 32 trillion won in fund resources while bypassing National Assembly review and cutting local subsidies to cover the resulting massive tax revenue shortfalls.

On October 27, the Board of Audit and Inspection (BAI) announced the results of its audit of the “Operation of Major Fiscal Management Systems, Focusing on Fiscal Revenue Management.” An audit conducted from November 2025 through January 2026 identified 11 problems, including issues in the design and operation of tax revenue forecasting models, a lack of transparency in responses to tax revenue shortfalls, and poor management of non-tax revenue.

The audit found that tax revenue forecasting errors averaged 51.5 trillion won annually from 2021 to 2024. By tax category, corporate tax had the largest error at 21.7 trillion won, followed by capital gains tax at 11.9 trillion won. In particular, only 19% of the forecasting errors for these two taxes were “economic fluctuation forecasting errors” stemming from differences between forecasts and actual results for macroeconomic variables such as gross domestic product (GDP). The remaining 81% were “forecasting model errors” caused by problems in the models’ design or operation.

For corporate tax forecasts, the audit pointed to a failure to properly account for the possibility of declining corporate profits and the effects of tax law revisions. When forecasting tax revenue for 2023, the Ministry of Economy and Finance at the time applied the historical average pre-tax net profit margin for companies, despite rapidly changing external economic conditions, including the Russia-Ukraine war. In 2024, it did not sufficiently account for the effects of a tax law revision that excluded dividends received from overseas subsidiaries from taxable income.

As a result, taxable corporate income was overestimated by 71 trillion won in 2023 and 112 trillion won in 2024. The resulting corporate tax forecasting model errors amounted to 20.4 trillion won and 11.9 trillion won, respectively. The BAI found that recalculating the 2024 corporate tax forecast to account for the omitted effects of the tax law revision could have reduced the model error by 45%.

For capital gains tax, the government also used a model that did not match actual real estate market statistics. In 2023, it assumed that capital gains tax revenue would rise at the same rate as real estate prices and transaction volumes: by 1% if either increased by 1%. However, an analysis of actual statistics showed that tax revenue rose by 6.38% when real estate prices increased by 1%, and by 1.26% when transaction volumes increased by 1%.

The audit also found that, in 2024, the government set a variable to account for external shocks affecting declining tax revenue without any objective criteria. Capital gains tax forecasting model errors resulting from these issues were 7 trillion won in 2023 and 4 trillion won in 2024. After the BAI adjusted the model, the errors fell by 55% and 60%, respectively.

The audit also identified adverse effects on fiscal management caused by inaccurate tax revenue forecasts. After tax revenue shortfalls of 56.4 trillion won in 2023 and 30.8 trillion won in 2024, the government transferred resources from funds such as the Foreign Exchange Equalization Fund and the Housing and Urban Fund to the general account through the Public Capital Management Fund.

In the process, it used a total of 32.3 trillion won in fund resources—17.3 trillion won in 2023 and 15 trillion won in 2024—while bypassing National Assembly review and other procedures. To avoid a rule requiring National Assembly review when a fund’s spending plan is changed by more than 20%, the government used measures including deferring repayment of funds it had previously lent. As a result, the general account took on the burden of repaying 24.5 trillion won in principal borrowed from the Public Capital Management Fund, as well as average annual interest of 833 billion won, through 2034.

The fiscal burden was also shifted to local governments. Without consulting them, the government cut local subsidies by 8.2 trillion won in 2023 and 2.2 trillion won in 2024. As a result, 66 local governments cut spending in 2023 and 50 did so in 2024. Over the two years, local governments also issued 1.3 trillion won more in local bonds than originally planned.

In 2024, the government decided to leave 500 billion won in the medical aid budget unused, but then drew on local medical aid fund resources without consulting local governments after concerns arose about disruptions to the program. As a result, by the end of 2025, four local governments, including the Seoul Metropolitan Government, had accumulated 220 billion won in unpaid medical bills to healthcare institutions.

Management of non-tax revenue was also inadequate. A sample review of the 25.1 trillion won in uncollected receivables as of the end of 2024 found 88.7 billion won in receivables that had already been paid or whose validity could not be confirmed, as well as 29.1 billion won in receivables whose statute of limitations had expired. The amount of unspent national subsidies that had not been recovered by the statutory deadline was also estimated at 753 billion won as of the end of 2025.

The BAI instructed the Ministry of Finance and Economy to improve its tax revenue forecasting models so they account for economic fluctuations, the effects of tax law revisions, and correlations with actual statistics. It also called on the Ministry of Finance and Economy and the Ministry of Planning and Budget to establish procedures for reporting to the National Assembly and consulting local governments regarding internal fund transactions used to address tax revenue shortfalls and advance settlements of local subsidies.

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