A convenient political tool
The Lee Myung-bak Administration, which began in 2008, positioned itself as business-friendly and announced a series of tax investigation reductions and deferments. The green industry was highlighted at the time. It was a measure to encourage the expansion of investment in new industries that would lead the Korean economy in the future. From 2013, the Park Geun-hye administration claimed to raise welfare resources by legalizing parts of the underground economy without tax hikes, and announced the strengthening of tax administration on companies and wealthy individuals suspected of tax evasion. But in the following year, the Park administration announced that tax investigations on some small and medium companies would be deferred. As the economy slowed down in early 2014, the government offered the “carrot” of delaying tax probes to boost the economy.
As job creation is the major goal of the Moon Jae-in administration, the National Tax Service proposed at the State Administration Advisory Committee to exclude small and medium-sized companies that add jobs from the tax inspection targets. It is considering offering exemptions to the companies that increase their workforce by more than 2 percent compared to the previous year.
There are two types of tax investigation, regular investigation conducted every five years and non-regular investigation with no set cycle. The regular investigation targets are the companies that have not been inspected in the past four years, whose tax reports are suspected of dishonesty or that are chosen randomly. Irregular inspections are conducted when there is evidence or tip-offs of tax evasion.
Regular inspection focuses on the verification of tax reports while irregular investigation probes suspected evasion. The tax revenue collected from tax investigation is only about 3 percent of the total revenue. The purpose of tax investigation is discouraging evasion and encouraging faithful filing rather than collecting taxes and fines.
But tax investigation is almost always mentioned whenever the administration changes. When tax investigation becomes a means to support policies, consistency is questioned, and industries may be discontent with the selection criteria. If deferment and exemption is repeatedly on offer, the rate of tax investigations could be reduced even further. Incoming NTS commissioner Han Sung-hee is an investigation expert, having served as the chief of the NTS Seoul Regional Office’s Inspection Department 4 and the chief of the NTS Inspection Department. The new administration pursues reform, and the new NTS head is a tax investigation specialist. It is about time we change how we view tax inspection. When the original purpose of encouraging faithful filing is restored, confidence in tax administration will grow.
JoongAng Ilbo, July 3, Page 30
*The author is head of the Innovation Lab at the JoongAng Ilbo.