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Public Administration

Tax administration 3

Professionalization and Progress of National Tax Administration (1977 to 1998)
 
The two decades from 1977 to 1998 mark a period of growing stability, maturity, and professionalization for national tax administration. First, the Act on the Regulation of Tax Reduction and Exemption underwent a major overhaul in 1981, resulting in the expanded application of tax benefits beyond industries to include certain social and economic functions, thus improving the neutrality of tax benefits. In the late 1980s, real estate prices skyrocketed while the Korean economy boomed thanks to the low value of the dollar, low interest rates, and low oil prices, as well as the Olympics hosted in Seoul. The General Real Estate Plan (GREP) was announced in August 1988, raising the transfer income tax, and introducing the new general land tax, the official land price system, and the concept of public ownership. Real estate became the foremost focus of policymaking. In August 1993, the Real-Name Financial Transaction System (RNFTS) went into effect. A new general tax on financial gains was introduced toward the end of 1996, while taxpayers became obligated to voluntarily report income tax. The simplified VAT taxpayer system was also introduced in July 1996.

The goal of computerizing and automating tax administration made significant progress during this period as well, with increasingly more computerization specialists being trained and better computer technologies applied to tax investigations. The Tax Integration System (TIS) was launched in 1997, epitomizing the rapidly advancing state of science and professionalism in tax administration. The volume of international taxation tasks also multiplied quickly during this period, as the Korean government actively embraced globalization and economic liberalization, and consequently increased the tax investigation of international transactions and sought out greater international cooperation on tax matters. The Bureau of International Taxation was thus created in 1986 and tax liaison officers began to be dispatched overseas. The Division of Foreign Taxpayers, which formed part of the Bureau of Direct Taxes until then, was given greater independence and scope of authority to handle international tax relations. In February 1987, the position of the International Tax Coordination Officer (Grade 1) was newly created to assist the Director of the NTS.

Table 4-7 shows that the main ideals the national tax administration policy sought to realize during this period were equity and fairness. Efforts were made to realize a more equitable tax system and improve tax bases, on the basis of tax investigation findings and computerization/automation. Trust, friendliness, and service also became keywords, reflecting the growing perception in Korean society at that time of the taxpayer as an autonomous actor in the nationwide tax system and administration. The release of the Declaration of Taxpayers’ Rights in June 1997 marked the culmination of such a perception.
 
[Table 4-3] Chronology of Major Developments in Tax Administration (1977 to 1998)
 
Date Major developments
1979 -NTS’ Investigation Task Force was merged with the Bureau of Direct Taxes, consolidating the tax investigation system
1980 -A national hotline, #2100, was set up to counsel the general public on tax matters
-The Central Tax Office was established in Seoul to provide advice on major tax items
Jan. 1980 -Corporate income taxes were now obligated to be reported voluntarily
1978-1982 -Basic Rules of National Taxation and Administrative Processing were passed
1983-1985 -The local tax system was converted into the Accountable Tax Record Management System, with the Multiple Tax Record Management System going into effect in October 1985
1983 -Rigorous investigations began to be undertaken into suspected cases of real estate speculation in certain regions, with public announcements on the investigations made in advance
Sep. 1984 -The Asian Regional Tax Service Directors’ Council was created to promote international cooperation on taxation
1982-1988 -The Seoul District NTS Branch was elevated in status to a Grade 1 bureau, with 6 new tax offices created
-Campaigns were launched to actively encourage voluntary tax reporting and friendly tax services
1988-1990 -GREP (“Countermeasure Plan Regarding Undue Gains from Real Estate Speculation”) was announced
-The Joint Investigation Task Force against Real Estate Speculation was launched and report centers in local NTS branches and tax offices were established, the range of regions with real estate speculation bans was expanded, and nationwide investigations were launched
-New legislations were passed including a tax on surplus income from land sales, and the betterment recapture system and the concept of public ownership were introduced
1990-1991 -Tax investigations were launched on businesses trading luxury items and services
-Three major investigations were organized targeting expense accounts spent on entertaining guests and excessive marketing
1988-1991 -Improvements were made to the VAT administration (which included: encouraging reports of increased VAT amounts, deciding tax bases for cash importers, abolishing the verification seal requirement on tax receipts, and improving automated tax receipt processes)
1988-1991 -The Rules of Tax Investigation Operation were passed, consolidating the investigation system
-Processes for applying for and receiving tax-related documents were simplified, while call centers were set up for complaints and inquiries and the Tax Complaint Processing System was launched
-Free estimates on transfer income tax amounts began to be provided
Jul. 1992 -Tax officers were established for 7 areas of tax services, including international investigation, tax litigation, and tax crime investigation
- Plural-grade promotion was introduced; automatic promotion based on years-in-service was extended to Grade 8; and the cap on the number of Grade-6 officials was raised.
-Efforts were made to boost the morale of tax officials by providing greater financial support (e.g., agency operation expenses, business trip expenses, etc.)
1992 -The Computer Investigation Task Force was set up in the Bureau of Investigation to make better use of computer records
1991-1993 -The Working Group for Land Sale Surplus Income Taxes was organized to levy preliminary and regular taxes on people who had made investments in regions with soaring land prices from 1991 to 1993
1993 -Property tax bureaus were added to the Gyeongin and Busan District NTS branches, and 2 new tax offices were set up, including the Samseong Tax Office
1993 -The RNFTS Plan was announced and went into effect, while preparations were made to impose taxes on financial income in general
-The plan for the Tax Integration System (TIS) was released
1994 -An inspection task force was specially appointed to investigate allegations of embezzlement, corruption, and bribery at the Northern Incheon District NTS branch and others
1995 -Income taxes were now obligated to be reported voluntarily by taxpayers
1996 -Taxpayers were granted access to tax investigation findings, and given the opportunity to contest the findings and request trials
1997 -The Committee for the Declaration of Taxpayers’ Rights was set up
-Taxpayers subjected to tax investigations were allowed to decide their preferred interrogation location -The TIS was finally launched
1995-1998 -The National Tax Administrative Organization Reform Group was organized and opened a trial tax office
-New taxes, including the tax on financial income in general, were imposed and collected without much objection
-Service booths were set up to consult taxpayers on real estate transfer
-Taxpayers were now able to mail their tax returns

Source: Korea Institute of Public Administration. 2008. Korean Public Administration, 1948-2008, Edited by Korea Institute of Public Administration. Pajubookcity: Bobmunsa.