Rooting out tax evasion

The National Tax Service and prosecutors found that fraudulent tax activities through manipulation of receipts reached 5.6 trillion won ($5.05 billion) last year. Businesses falsifying receipts for the purpose of paying less in taxes is clearly a criminal offense.

In principle, input tax charged by a supplier is deductible if the supply was for the customer’s business. But it becomes a criminal offense if the sale was made with the intent to defraud. A ghost company issues a fake receipt to allow a business to deduct it from its input taxes and pay less in value-added and corporate income taxes. The company does not just pay fewer taxes, but also eats into other people’s tax money through deducting benefits.

In a joint crackdown, tax and law enforcement authorities identified 337 fraudulent cases and indicted 125 individuals. The combined amount of tax evasion reached 161.9 billion won. Organized tax embezzlement and widespread fraudulent activities do not only lessen the government’s tax revenues, but they also undermine the value-added tax system that accounts for a third of the nation’s domestic tax revenue. Scheming in financial transactions has critically damaged the credibility and transparency of our commerce and tax administration.

Tax and law enforcement agencies conduct crackdowns on fraudulent tax practices every year, but faked receipts and collusion to evade taxes do not stop. Tax invoice manipulation calls for collaborators with expertise in accounting and tax, which suggests that there are professionals in the field who know how to get around the law. Tax authorities say that investigations are getting tougher because embezzlement through fraud has become more organized and sophisticated than before.

When it comes to rooting out businesses that collude to manipulate tax documents, loopholes must be tightened. Tax authorities must design regulations with more scrutiny and upgrade their techniques to identify fraudulent activities.

More effective techniques should be developed to compare invoices with tax receipts and trace accounting schemes back to the source. Penalties against schemers and fraudulent activities also must be strengthened. Only then will individuals and businesses stop cooking up their papers to evade taxes.

JoongAng Ilbo, Jan. 5, Page 30