"Gyeonggi Province's Finances Shaken by Acquisition Tax"... 'Fiscal Brief' Issue 2 Released

Gyeonggi Province released the second issue of its “Gyeonggi Fiscal Brief” on November 4 to help residents understand the province’s fiscal situation.

Titled “Why Is Gyeonggi Province’s Revenue Not Growing and Remaining Volatile?”, the report examines the province’s revenue structure, which relies heavily on acquisition tax; the fiscal difficulties it faces as a local government that does not receive the general local allocation tax; and proposals for tax reforms to expand its consumption-based tax revenue.

While the inaugural issue, released on October 30, identified the revenue structure’s reliance on acquisition tax and the increase in rigid mandatory spending as key causes of the fiscal crisis, this issue takes a closer look at the characteristics of that revenue structure.

According to the report, the most notable feature of Gyeonggi Province’s revenue structure is its heavy reliance on acquisition tax. Of the 15.3615 trillion won in provincial tax collected in 2025, acquisition tax accounted for 7.8473 trillion won, or 51.1%. This was down 3.0829 trillion won (28.2%) from 10.9302 trillion won in 2021, when the real estate market was booming.

Local consumption tax, the second-largest source of provincial tax revenue after acquisition tax, is allocated as a certain proportion of value-added tax, a national tax. This limits the province’s ability to increase revenue through its own collection efforts. In addition, local income tax, which is levied on income and business activities, is a city and county tax, leaving the provincial government without a tax source directly linked to regional economic growth.

Gyeonggi Provincial Government

Another feature is that the province lacks sufficient transfer revenue to make up for falling tax revenue. Gyeonggi Province has been classified as a local government that does not receive the general local allocation tax since 2017, and in practice has no funds it can use at its discretion beyond its own revenue. As a result, when tax revenue plunges, the province has no fiscal buffer to cushion the blow and must bear the full impact.

The report also pointed to flaws in the calculation method used to determine whether a local government is eligible to receive the general local allocation tax. It said that even when tax revenue plunges, Gyeonggi Province can still be classified as having sufficient fiscal capacity and therefore ineligible for the tax, because its actual administrative and welfare needs are not adequately reflected.

As a result, while bearing the full impact of declining tax revenue, Gyeonggi Province must still meet its legally mandated transfer expenditures with insufficient funds. These include local matching contributions for state-subsidized projects, adjustment grants to cities and counties, and transfers to the provincial education office.

The report said fundamental tax reform is needed for Gyeonggi Province to manage its finances sustainably. It proposed raising the local consumption tax rate from the current 25.3% to 40.3%; converting the local education tax portion of the tobacco consumption tax into the local resource and facility tax earmarked for firefighting to secure a stable funding source for fire services; and transferring part of the national corporate tax (5%) to metropolitan-level local tax to secure investment funding within the region.

Gyeonggi Province Governor Choo Mi-ae said, “Stable fiscal management requires the province’s own efforts as well as fundamental tax reform to supplement a revenue structure centered on acquisition tax. I hope this report will help residents understand the province’s fiscal conditions and recognize the need for tax reform.”

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