More information, more taxThe discussion about extending the scope of financial intelligence government agencies have access to has sparked debate over tax justice and privacy. The conflict arises from dueling principles - the government’s right to levy dues on income and the individual’s right to conduct financial transactions privately.
We should address the problem from the perspective of both efficacy and security. If security is assured to some extent, we would be able to bring taxable income that had been going under the radar onto the screen. It would be without extra cost, as it would better utilize the Financial Services Commission’s Financial Intelligence Unit database. As it stands, more than 90 percent of the information is wasted because its current primary service is investigating money-laundering or other criminal acts.
The National Tax Service already has sufficient data on unofficial assets, income, spending, foreign exchange and tax dodging activities. Greater access to financial transactions could enhance the use of the data pool and help the tax authority better calculate levies on taxpayers, which would at the end of the day boost fiscal revenue.
There is a concern that the tax authority would have too much information on taxpayers regardless of whether the information could be safely protected. The NTS has said it would seek the opinions of other agencies to ensure the confidentiality of the information. It vows to protect financial information while strengthening the efficiency of tax collection. If strict protection and control of tax information is assured, we may not have to worry about extra problems just because financial and tax information are integrated.
There also has been a growing change around the world with regards to the sharing of financial information and exceptions in financial privacy. Secrecy has been eased. Access to banking accounts in nations with tax treaties that had been allowed for criminal investigations has been extended to cover the right to collect taxes.
The Organization of Economic Cooperation and Development also recommends tax authorities seek greater access to the financial data pool. The local authority has stepped up efforts to gather data that had been going under the tax radar with things like cash receipts and electronic tax accounting. It needs to boost its revenue base while reinforcing the rights of dutiful taxpayers.
The banking privacy argument needs to be reconsidered. Some may believe that the tax authority’s access and employment of financial data could undermine the constitutional right to privacy. But strictly speaking, financial intelligence sharing wouldn’t make much difference to private lives because government agencies already have legitimate access to information at the Financial Intelligence Unit.
What would matter is how much of the information is put to use in levying taxes. The Constitutional Court ruled that the obligation to submit medical spending to the NTS at the end of the year to simplify the tax process does not violate the constitutional right to privacy of information. Some of the discomforts and restrictions to privacy do not necessarily infringe on the constitution.
Sharing of information on levies and financial transactions could help bring more tax equality. If discretion and control are strictly administered on the way the data is used, taxpayers won’t have any reason to oppose the plan.
By Park Hun
The author is a tax law professor at the University of Seoul.
Translation by the Korea JoongAng Daily staff.