Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses
Increasing tax revenues by reducing the shadow economy has been a central goal of tax policy and administration in the Republic of Korea since the National Tax Service was established as an independent agency in 1966. This paper examines the Tax In...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/105841483990962599/Can-tax-incentives-for-electronic-payments-reduce-the-shadow-economy-Koreas-attempt-to-reduce-underreporting-in-retail-businesses http://hdl.handle.net/10986/25945 |
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okr-10986-259452021-06-08T14:42:47Z Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses Sung, Myung Jae Awasthi, Rajul Lee, Hyung Chul tax evasion tax avoidance shadow economy informal economy electronic payment cashless payment electronic tax administration tax compliance underreporting undeclared work tax incentive Increasing tax revenues by reducing the shadow economy has been a central goal of tax policy and administration in the Republic of Korea since the National Tax Service was established as an independent agency in 1966. This paper examines the Tax Incentive for Electronically Traceable Payments, which was introduced by the Korean tax authorities in 1999 to promote payments made using credit cards, debit cards, and electronic cash receipts in business-to-consumer transactions. The tax incentive allows wage and salary earners to claim tax deductions for eligible purchases made using electronically traceable payments when they file their year-end income tax settlements. The tax incentive scheme greatly contributed to changing the Korean economy into a cashless economy over the past decade and a half. Card payments as a ratio of Korea's gross domestic product have ranked the highest in the world since 2005, reaching 49 percent in 2014. The Tax Incentive for Electronically Traceable Payments scheme has changed the taxpayer ratio over business income earners from stagnant at around 30 percent through the late 1990s, to approximately 80 percent at present. The effective personal income tax rate for business income followed a continuous upward trend, from 3.4 percent in 1998 to 6.3 percent in 2013. The total revenue increase driven by the tax incentive scheme was estimated as W 3.4 trillion, with the scheme's costs reaching W 1.9 trillion. The net gain was an estimated W 1.4 trillion (approximately US$1.3 billion), which increased personal income tax revenue by 4.2 percent. The tax incentive scheme also had a positive impact on income redistribution, decreasing the Gini coefficient by 0.11 percentage points. 2017-01-30T17:32:49Z 2017-01-30T17:32:49Z 2017-01 Working Paper http://documents.worldbank.org/curated/en/105841483990962599/Can-tax-incentives-for-electronic-payments-reduce-the-shadow-economy-Koreas-attempt-to-reduce-underreporting-in-retail-businesses http://hdl.handle.net/10986/25945 English en_US Policy Research Working Paper;No. 7936 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper East Asia and Pacific Korea, Republic of |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
tax evasion tax avoidance shadow economy informal economy electronic payment cashless payment electronic tax administration tax compliance underreporting undeclared work tax incentive |
| spellingShingle |
tax evasion tax avoidance shadow economy informal economy electronic payment cashless payment electronic tax administration tax compliance underreporting undeclared work tax incentive Sung, Myung Jae Awasthi, Rajul Lee, Hyung Chul Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses |
| geographic_facet |
East Asia and Pacific Korea, Republic of |
| relation |
Policy Research Working Paper;No. 7936 |
| description |
Increasing tax revenues by reducing the
shadow economy has been a central goal of tax policy and
administration in the Republic of Korea since the National
Tax Service was established as an independent agency in
1966. This paper examines the Tax Incentive for
Electronically Traceable Payments, which was introduced by
the Korean tax authorities in 1999 to promote payments made
using credit cards, debit cards, and electronic cash
receipts in business-to-consumer transactions. The tax
incentive allows wage and salary earners to claim tax
deductions for eligible purchases made using electronically
traceable payments when they file their year-end income tax
settlements. The tax incentive scheme greatly contributed to
changing the Korean economy into a cashless economy over the
past decade and a half. Card payments as a ratio of
Korea's gross domestic product have ranked the highest
in the world since 2005, reaching 49 percent in 2014. The
Tax Incentive for Electronically Traceable Payments scheme
has changed the taxpayer ratio over business income earners
from stagnant at around 30 percent through the late 1990s,
to approximately 80 percent at present. The effective
personal income tax rate for business income followed a
continuous upward trend, from 3.4 percent in 1998 to 6.3
percent in 2013. The total revenue increase driven by the
tax incentive scheme was estimated as W 3.4 trillion, with
the scheme's costs reaching W 1.9 trillion. The net
gain was an estimated W 1.4 trillion (approximately US$1.3
billion), which increased personal income tax revenue by 4.2
percent. The tax incentive scheme also had a positive impact
on income redistribution, decreasing the Gini coefficient by
0.11 percentage points. |
| format |
Working Paper |
| author |
Sung, Myung Jae Awasthi, Rajul Lee, Hyung Chul |
| author_facet |
Sung, Myung Jae Awasthi, Rajul Lee, Hyung Chul |
| author_sort |
Sung, Myung Jae |
| title |
Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses |
| title_short |
Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses |
| title_full |
Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses |
| title_fullStr |
Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses |
| title_full_unstemmed |
Can Tax Incentives for Electronic Payments Reduce the Shadow Economy? : Korea's Attempt to Reduce Underreporting in Retail Businesses |
| title_sort |
can tax incentives for electronic payments reduce the shadow economy? : korea's attempt to reduce underreporting in retail businesses |
| publisher |
World Bank, Washington, DC |
| publishDate |
2017 |
| url |
http://documents.worldbank.org/curated/en/105841483990962599/Can-tax-incentives-for-electronic-payments-reduce-the-shadow-economy-Koreas-attempt-to-reduce-underreporting-in-retail-businesses http://hdl.handle.net/10986/25945 |
| _version_ |
1764460552592031744 |