Gov't squeezes state-run banks to address tax revenue shortfall

Clockwise from top left are headquaters of the Korea Development Bank, Industrial Bank of Korea and the Export-Import Bank of Korea. Yonhap

The government is pressing state-run banks to pay more dividends than what they had originally planned in what is seen as a bid to make up a huge shortfall in tax revenue, industry officials said Friday.

Based on their respective net incomes in 2024, the Korea Development Bank (KDB) estimated that 432.7 billion won ($299.13 million) would be an appropriate government dividend, while the Export-Import Bank of Korea (Eximbank) placed the amount at 137 billion won. The Industrial Bank of Korea (IBK) valued its dividend payout at 480 billion won.

The Ministry of Economy and Finance, however, determined that 800 billion won was the adequate dividend amount it should take from the KDB.

The ministry also noted Korea Eximbank should pay 210 billion won in government dividends, while IBK should settle 500 billion won.

The total dividends that the three lenders planned to pay is 1.05 trillion won, compared to the 1.51 trillion won the government wants to take from them.

“Such difference reflects the government’s desperate bid to make up the shortage in tax revenue by pressing companies that it wholly owns,” an industry official said.

The government suffered a massive tax revenue shortfall for two straight years due to weak corporate activities that backfired on eased tax regulation for businesses.

The regulation is based on the belief that it will boost corporate investment and eventually result in higher taxable income.

The government collected 336.5 trillion won in taxes in 2024, down from 344.1 trillion won in 2023 and 30.8 trillion won lower than its initial forecast.

The shortage came after a record tax shortfall of 56.4 trillion won in 2023, when the government was projected to collect 400.5 trillion won in taxes.

“Under the circumstances, companies that are wholly owned by the government are targeted as sources of additional income,” the official said.

He noted the finance ministry holds a 91.3 percent stake in the KDB and the remaining stakes are owned by the land, commerce and oceans ministries.

Concerning Eximbank, the finance ministry owns a 68.6 percent stake, while the KDB holds another 22.08 percent, and the Bank of Korea holds the remaining 9.12 percent.

For the IBK, 59.5 percent of its shares are owned by the finance ministry, while the KDB holds 7.2 percent and Eximbank owns 1.84 percent.

According to industry officials, the government insists on a dividend payout ratio of 35 percent, which was applied in 2024.

The Financial Workers' Union said that such a ratio should be adjusted flexibly in consultation with the involved companies.

The union noted the KDB had paid more than 2 trillion won as dividends to the government from 2019 to 2023 and that it wants to reduce the amount to focus more on its goal of policy lending.

The KDB’s dividends accounted for more than 25 percent of all dividends paid by about 40 government-funded institutions over the cited period.