Published : 2013-08-25 20:22
Updated : 2013-08-25 20:22
The National Tax Service collected 9.8 trillion won less than it could have in value-added taxes last year. It also could have collected another 2 trillion won more in taxes if counterfeit gasoline and diesel had been prevented from being sold to drivers.
These uncollected taxes must be the tip of the iceberg, given that the nation’s shadow economy is estimated at 300 trillion won. The administration will have to expose as much of the underground economy to taxation as possible before it considers increasing taxes.
There is no denying that bringing underground business activities to light and, by doing so, increasing tax revenues is easier said than done. But has the government done its best to forestall tax evasions in the past? Probably not.
The administration will have to launch a war on the shadow economy, as many salaried people believe. Salaried workers say they shoulder greater burden than they deserve because all their incomes are transparent and taxed while many self-employed people and corporations hide their earnings in clever ways to dodge taxes.
They believe that government agencies can do much more to prevent tax evasion. This belief is shared by President Park Geun-hye.
As such, she is pushing agencies to work together in attacking the shadow economy. Moreover, her administration needs to make up for the shortfall in tax revenues that amounted to 10 trillion won in the first half of this year.
The Korea Institute of Public Finance says that value-added-tax revenues would have amounted to 68.4 trillion won if self-employed businesspeople and corporations had paid all the value-added taxes that were due last year. But the amount the National Tax Service actually collected was at 58.6 trillion won.
This huge discrepancy resulted mainly from the way value-added taxes are collected: The seller charges the taxes to buyers each time they sell goods and services and transfers those amounts to the government in lump sums every six months.
Experts say changes in methods of payment will help prevent tax evasion. Among them is a proposal to require credit card companies to split the price of a credit card purchase and its value-added tax and send the due amounts respectively to the seller and the National Tax Service.
Experts also say that information shared by relevant government agencies will help crack down on the clandestine manufacture and sale of fake gasoline and diesel. They propose to revise relevant laws in the way the Ministry of Trade, Industry and Energy will be empowered to collect information on petrochemicals imported to manufacture gasoline and diesel as well as sales at filling stations throughout the nation.
Coordinated action among government agencies should be of great help in fighting the shadow economy. Yet, the administration will have to do much more and exercise greater ingenuity if it is to stop crooks from getting away with tax dodging. These efforts should precede any attempt to raise taxes.