Creation of the NTS and the Basis for National Tax Administration (1966 to 1976)
The decade between 1966 and 1976 was a noteworthy time in Korea of developing and consolidating a nationwide tax system and the basis for national tax administration. Until 1968, a dual-structure income tax system was in place, which imposed general income taxes on people who earned high levels of income. In 1975, the general tax system was expanded in scope to apply to all income-earning taxpayers, while the tax designed to prevent real estate speculation was abolished and replaced by the transfer income tax and special value-added taxes on corporations. The amendment of the tax law toward the end of 1976 also led to the abolition of eight indirect taxes and expanded the scope of the VAT, completing the basic framework of taxation.
In the meantime, the NTS was given greater authority of investigation than that accorded to tax authorities prior to its creation. In 1970, the government began to computerize tax administration. Beginning in 1973, the government also worked on improving taxes on necessities, by bringing individual and business income tax bases into better alignment with reality, and by introducing a taxation-by-schedule system for small taxpayers. Late in 1974, the Framework Act on National Taxes was passed, thus defining the basic legal provisions regarding tax administration.
Table 4-2 summarizes the major developments in tax administration that took place during this period. In March 1966, the NTS came into being, with four bureaus, 13 offices, four local NTS branches, and 77 tax offices, thus enabling more efficient raising of revenue for national development projects. This initial organizational structure remained intact until March 1973, when the Investigation Bureau was newly added. The BoT (part of the MoF) that handled taxation until then was merged with the NTS and reorganized as the Bureau of the Taxation System.
The establishment of the NTS significantly reinforced the government’s efforts to collect taxes, and the addition of the Bureau of Investigation boosted the government’s ability to investigate tax-related frauds. Investigation divisions were added to tax offices nationwide to prevent tax evasion and improve control over public revenue sources. In the year of its foundation, 1966, the NTS managed to collect KRW 70 billion in total in taxes, a 66.5 percent increase from 1965. The yearly amount of taxes collected by the NTS continued to grow significantly, by 48.3 percent in 1967 and by 50.5 percent in 1968.
The Office of Computerization was newly created in the NTS in December 1970 to computerize tasks of tax administration and improve efficiency. As a result, the number of tax cases, amounting to some 4.5 million in 1965, dramatically rose to 15.6 million by 1969.
Overall, the major goals of national tax administration during this decade were reinforcing and improving the science and efficiency of the tax administration system. Fulfilling these goals was crucial to satisfy the national aim of securing the revenue necessary for economic development. In pursuing this aim, however, tax administration came to take on compulsive aspects.
[Table 4-2] Chronology of Major Developments in Tax Administration (1966 to 1976)
|March 3, 1966
||-The NTS came into being (with 4 bureaus, 13 divisions, 1 legal officer, and 1 public information officer), while 4 provincial tax administrations were reorganized into local NTS branches commanding 77 local tax offices in total
-The BoT (part of MoF) was merged with the NTS and reorganized into the Bureau of the Taxation System (with tax system divisions 1, 2, and 3)
-The MoF’s Brewing License Laboratory was transferred to the NTS
-The NTS raised KRW 70 billion in total tax revenue (a 66.5% year-on-year increase)
||-Special measures taxes began to be imposed to prohibit real estate speculation
-General income taxes were levied on persons earning income above a certain level
||-The Korea Customs Service (KCS) came into being, responsible for the imposition and collection of tariffs
||-The authority to monitor tax-related activities was centralized to facilitate tax investigations
||-March 3 was declared the Day of Taxation, commemorating the anniversary of the NTS’ creation
||-The Bureau of Investigation was established within the NTS to facilitate tax record collection
||-The Green Reporting System was introduced to encourage taxpayers to report their tax returns voluntarily (GRS was abolished in 1995)
||-Central and Daegu District NTS branches were created, along with 14 new tax offices
||-The Office of Computerization was created to automate tasks of tax administration
||-“Emergency Order (of August 3) for Economic Stability and Growth” went into effect
||-The scope of general tax income was expanded to apply to all taxpayers
-The Framework Act on National Taxes and the Undue Gain Tax Act went into effect
-Anti-speculation taxes on real estate were abolished and replaced by the transfer income tax and the special corporation VAT
||-The transfer income tax and the special corporation VAT went into effect (abolishing 8 indirect taxes)
||-Tax bases were reformed to better reflect reality, the taxation-by-schedule system went into effect regarding small taxpayers, and other initiatives were launched to improve taxes on necessities
Korea Institute of Public Administration. 2008. Korean Public Administration, 1948-2008, Edited by Korea Institute of Public Administration. Pajubookcity: Bobmunsa.