In yet another measure aimed at accelerating economic recovery, the government will delay tax investigations into 1.3 million small and medium-sized enterprises through the end of next year.
The National Tax Service on Monday announced that it would defer tax investigations and audits of 1.31 million SMEs with annual sales of less than 100 billion won through the end of 2015. About 25 percent of the country’s businesses will be affected by the measure, the largest such to date. The tax authorities previously deferred tax investigations in the aftermaths of the 1997 Asian and 2008 global financial crises, but the scope of the latest tax probe deferral is unprecedented.
The deferral will apply to companies in sectors suffering from the depressed economy, regional industries that are performing poorly, growth engine industries, and businesses that create jobs. Conglomerate subsidiaries, those who disturb the tax order, and those suspected of specific cases of tax evasion are excluded from the deferral.
National Tax Service Commissioner Lim Hwan-soo said that his organization was playing its part in the government’s efforts to revive the economy by minimizing interference in the business activities of SMEs. The deferral of tax investigations and all other tax “interferences” would eliminate uncertainty for companies, allowing them to focus on running their businesses, the NTS said.
The measure is a complete about-face from the government’s previous position on tax collection. Last year, it vowed to go after the underground economy to boost its tax revenue in order to fund the various social welfare programs that were pledged during the presidential election campaign.
Last year, 9,500 tax probes resulted in 7.6 trillion won in taxes, a 37 percent increase in the number of tax probes since 2009, when 2.5 trillion won was collected as a result. As could have been expected, businesses complained that tax probes were causing them headaches and stifled business activities.
Yet, it is questionable whether the deferral of tax probes is the right step toward reviving the economy. Tax investigations should be conducted consistently and strictly by the book for all taxpayers to feel they are treated fairly and equally. Exceptions invite arguments for other exceptions, potentially disrupting the tax system.
The deferral of tax investigations should not be taken as a signal that the authorities will condone irregularities. Yet, it may be difficult for businesses already experiencing hardships to resist the temptation. Deferring tax investigations for a year is a stop-gap measure at best. What is needed in the long term is a more transparent, strict and fair collection of taxes.
