This year promises to be a tough year for Kim Duk-joong, the new head of the National Tax Service, as he is charged with collecting more taxes than before at a time when the economic slowdown is making a dent in government revenue.
Kim also faces the task of rooting out corruption among tax officials. The need for house cleaning is all the greater as he is set to step up crackdowns on tax cheats to attain the tax revenue target.
During a parliamentary hearing on Monday, Kim raised the alarm by disclosing that the government’s tax receipts in the first two months of the year fell by as much as 6.8 trillion won compared with a year ago.
He attributed the large drop partly to the fact that the tax income in January 2012 was inflated by 3.2 trillion won. According to him, some taxpayers paid their December 2011 taxes the next month because the last day of 2011 was a Saturday.
Even after taking this explanation into account, the January-February tax receipts were 3.6 trillion won less than a year ago. Kim did not explain what caused the difference but the economic slowdown must have been a factor.
Due to the slowing economy, last year’s tax income fell short of the target by 2.8 trillion won, the first such case since 2004. This year, the shortfall could be larger.
Last September, the government set the revenue goal for 2013 at 216.4 trillion won based on the assumption that the economy would grow 4 percent this year. But the government already lowered its growth forecast to 3 percent in December and is expected to bring it further down to the upper 2 percent range soon.
According to government estimates, a 1 percentage point drop in GDP growth rate reduces tax receipts by 2 trillion won.
To make up for the expected shortfall, Kim will have to intensify crackdowns on tax evaders. In this regard, it is necessary to allow the NTS to access the database of the Financial Intelligence Unit.
Kim told lawmakers that the FIU’s information on financial transactions would help the NTS zero in on the nation’s underground economy and collect an additional 6 trillion won a year from tax evaders.
The tax office needs to be encouraged to go after tax cheaters to ensure fairness in taxation. Furthermore, the government needs to increase tax income to finance President Park Geun-hye’s welfare pledges.
But before launching a war against tax evaders, the tax agency needs to clean house first to gain the public’s confidence.
Earlier this month, the police rounded up a group of nine incumbent and former NTS officials for taking bribes from companies in return for providing favors. They were suspected of having received a total of 316 million won from seven businesses for about a year from September 2009.
It was followed by another case where three officials of a tax office in Seoul were investigated by the prosecution for taking bribes amounting to tens of millions of won from a bioengineering company last year.
According to reports, more than 100 NTS officials were punished for involvement in money-for-favors scandals in the past two years. We have no idea how much tax income is lost due to corruption among tax officials.
During the parliamentary hearing, lawmakers suggested the need for an external oversight commission to rein in corruption at the NTS. Kim dismissed the idea, saying the tax agency had the capacity to clean up its act. He should prove it.
