Research Reports
Finding strategic solutions to manage government expenditures of the agricultural sector efficiently - focusing on special tax for rural development
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AuthorPark, Joonkee
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Publication Date2013.12.30
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Original
Special Tax for Rural Development (STRD) is a special-purpose tax that was introduced to achieve three goals: reduce damages from agricultural market liberalization, strengthen competitiveness of the agriculture and fisheries sector, and improve the welfare of farmers and fishermen. After the conclusion of Uruguay Round negotiations, government set up the first-phase 42 trillion-won investment plan. For developing the plan, it is necessary to secure an additional fund to improve rural competitiveness. As a result, STRD was introduced in July 1994. In addition, the Korea-Chile FTA in 2003 made the government to secure an additional fund to prepare complementary measures. Accordingly, the plan was extended to June 2014.
This paper overviews the limitation of STRD as a special-purpose tax, then finds the way to mitigate the volatility of STRD revenues. We also suggest several ways to improve the expenditure scheme of STRD pointing out the coordination problem.
In chapter 2, the result shows that STRD revenue is very helpful to carry out many agricultural policies successfully. It reveals that procurement of tax revenue made it possible to effectively implement major agricultural investment and financing projects, such as farm income compensation, management support, production base expansion, and rural development. If the annual tax revenue of 5.534 trillion won (2012) is not secured, it would not be possible to accomplish investment and financing.
However, in chapter 3, STRD still have a problem in terms of the revenue scheme. First, there is the regular deficit in tax revenue because government has overestimated the revenue annually. Second, STRD can be a little volatile being a surtax that a tax upon the other taxes. Amounts of other taxes may be fluctuated, which affects the stability of STRD revenue. To relax this problem, we suggests to simplify the scheme of STRD such as adjusting the tax rate and adding another tax for being levied.
We focus on the expenditure of STRD in chapter 4. Still, there needs to be improvement in the expenditure structure so that the STRD can play the role of a special-purpose tax effectively. The STRD is currently assigned to the Special Account for Improvement of Agricultural and Fishing Villages. The share of STRD in the account is 38.8%(2012). Out of the total fund of the special account, 57.7% is allocated for STRD projects while the rest 42.3% (2012) is transferred to other accounts such as the Special Account for Regional Development.
As we mentions in chapter 6, there are limitations to achieving the original purpose of STRD since the expenditure is implemented according to the overall direction and purpose of the agricultural investment and financing plan, rather than according to an independent plan for STRD.
For enhancing efficiency, we emphasize several points. First, it is necessary to reset a role of STRD as an earmarked tax. It is highlighted to link the STRD investment plan with the agriculture's outlook. Second, resource should be allocated efficiently. Inefficiency appears in the process of implementing the STRD project and agricultural investment and financing. It is important to adjust investment priorities, simplify the budget structure, and strengthen the performance evaluation system.
Researchers: Joonkee Park, Meebok Kim, Jieun Lim
Research period: 2013. 8. - 2013. 12.
E-mail address: jkpark@krei.re.kr
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