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

World Bank, Washington, DC

关键词: tax evasion;    tax avoidance;    shadow economy;    informal economy;    electronic payment;   

DOI  :  10.1596/1813-9450-7936
RP-ID  :  WPS7936

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Increasing tax revenues by reducing theshadow economy has been a central goal of tax policy andadministration in the Republic of Korea since the NationalTax Service was established as an independent agency in1966. This paper examines the Tax Incentive forElectronically Traceable Payments, which was introduced bythe Korean tax authorities in 1999 to promote payments madeusing credit cards, debit cards, and electronic cashreceipts in business-to-consumer transactions. The taxincentive allows wage and salary earners to claim taxdeductions for eligible purchases made using electronicallytraceable payments when they file their year-end income taxsettlements. The tax incentive scheme greatly contributed tochanging the Korean economy into a cashless economy over thepast decade and a half. Card payments as a ratio ofKorea's gross domestic product have ranked the highestin the world since 2005, reaching 49 percent in 2014. TheTax Incentive for Electronically Traceable Payments schemehas changed the taxpayer ratio over business income earnersfrom stagnant at around 30 percent through the late 1990s,to approximately 80 percent at present. The effectivepersonal income tax rate for business income followed acontinuous upward trend, from 3.4 percent in 1998 to 6.3percent in 2013. The total revenue increase driven by thetax incentive scheme was estimated as W 3.4 trillion, withthe scheme's costs reaching W 1.9 trillion. The netgain was an estimated W 1.4 trillion (approximately US$1.3billion), which increased personal income tax revenue by 4.2percent. The tax incentive scheme also had a positive impacton income redistribution, decreasing the Gini coefficient by0.11 percentage points.