The black market: A ubiquitous beast
After dinner and drinks, we left the restaurant at around 9 p.m. One of us spotted a pojang macha tent bar and suggested we have one last round to finish the night.
We all took a seat. There was a luxury hotel in the neighborhood and there were some foreigners at the bar. As Japanese tourists had noodle soup, we drank boilermakers of soju and beer.
I tried to start a conversation with the owner.
“President Park Geun-hye vowed to go after the underground economy. Aren’t you worried?”
But she seemed puzzled.
“President Park is supposed to help the ordinary citizens and the working class. What are you talking about?” I had to change the subject immediately.
In Korea, the term “underground economy” usually makes you think of illegal gambling houses operated by crime syndicates, drugs, human trafficking and prostitution. So it may seem strange to ask a pojang macha owner, who works hard to make a living, such a question. But the fact is that the black market is everywhere here. The CDs and DVDs sold on carts in the street and the alcoholic drinks you have at the noraebang are all parts of it. It consists of all economic activities that aren’t accounted for in government statistics. And those happen everywhere, all the time. If money is made without being reported to the tax office, that’s tax evasion.
Of course, when President Park mentioned the taxation of the underground economy, she may not have specifically been referring to street vendors. But the obvious objective is to collect more tax. The government needs more money to fulfill its welfare promises, and taxing the black market is one way to come up with the funds. She wants to bring the economic activities that happen in the shadows out into the light.
Even when a registered store makes 1 million won ($923.45) in revenue but only reports 700,000 won, that’s 300,000 won in the black market. The same goes for professionals like doctors and lawyers who evade tax by reporting less income than they earn.
So how big is Korea’s underground economy? There’s no way to be certain, but according to the estimations of different agencies, it’s thought to account for around 20 percent of the total GDP.
How can we reduce its size? Hidden tax sources should be found, and tax evasion should be more strictly investigated. That’s the job of the National Tax Service. Going after the underground economy is hardly a new challenge; it’s something that’s been pursued for a very long time and is still a work in progress.
Why is it so hard to eradicate the black market? Because the desire to evade tax often exceeds the capacity of the government to catch people doing it. The new administration will launch an exclusive task force as a show of force, and those that operate in the underground economy will likely keep a low profile for the time being. Soon, government officials will report to the president that they have successfully defeated the enemy. But this type of ambiguous, short-term fight has no chance of making lasting inroads. Hopefully, the Park administration won’t repeat the mistakes of the past.
* The author is the head of the JoongAng Ilbo Economic Research Institute.
by Shim Shang-bok