Korea No.1 in OECD in self-employed sector’s contribution to underground economy
Published : 2013-08-15 20:17
Updated : 2013-08-15 20:18
The National Tax Service is set to closely scrutinize the books of high-income and self-employed professionals such as doctors, lawyers, architects, real estate agents and private moneylenders to see whether they have been properly paying their taxes.
This toughened stance comes as the Ministry of Strategy and Finance seeks to increase its tax collection from the self-employed to make up for the possible decrease in revenue following the readjustment of its tax code revision.
The Ministry of Finance plans to make it mandatory for self-employed professionals to issue electronic tax invoices and cash receipts as part of efforts to boost the transparency of their business transactions, it said via a statement.
“The government will strengthen its measures in diverse ways against tax avoidance by high-income and self-employed professionals,” said Deputy Prime Minister and Finance Minister Hyun Oh-seok as he unveiled the modified revision.
The planned crackdown on the self-employed is an alternative to increasing taxes on mid-income earners as initially planned by the government in its first proposal, which drew harsh public criticism.
The self-employed sector, which mostly makes transactions in cash to avoid paying full taxes, has been one of the major sources of the underground economy.
Economists at home and abroad have long drawn attention to the issue, emphasizing that the significant presence in Korea should be strictly dealt with, but to no avail. Self-employed professionals also include operators of wedding halls, private education institutions and night clubs.
Their business transactions accounted for more than 44 percent of Korea’s shadow market, which took up around 26 percent of the economic output as of 2010, according to a report by Prof. Friedrich Schneider of Johannes Kepler University in Austria.
Their involvement in the Korean black market was double that of the OECD average and was the biggest among 39 economies, the report noted.
The NTS only managed to uncover tax avoidance worth 1.3 trillion won by the self-employed between 2008 and 2012. In the last two years, high-income professionals evaded taxes of over 300 billion won.
The Finance Ministry said it was seeking to secure 27.2 trillion won through the normalization of the underground economy over the next four years.
It will seek 18 trillion won by reducing tax exemptions and other benefits, and 2.9 trillion won by increasing its tax levies on income from financial investments and assets.
This would altogether add up to 48 trillion won out of the 135 trillion won the government planned to spend on welfare and economic recovery.
The rest of the 84 trillion won would come from state expenditure cuts, and 3 trillion won from non-tax revenue such as sales of government-owned assets.