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Public Administration

Tax administration 4

National Tax Reforms in 1998 and the Changing Paradigm in Tax Administration after 1998
 
Following the Foreign Exchange Crisis of 1997, the Korean government launched a systematic drive for deregulation and economic liberalization. Major structural readjustments were made in the financial sector, corporations, the public sector, and in labor relations according to the International Monetary Fund’s terms. The Kim Daejung administration, the “People’s Government,” was faced with soaring demand for social reforms. Enhancing the transparency and efficiency of national tax administration and improving the level of convenience of taxpayers were two major goals on the Kim administration’s policy agenda. New and better taxpayer services began to be launched in 1999, while tax-related organizations were forced to undergo major reforms for the purpose of eliminating all waste and irrationalities in tax administration.

The reforms of 1999 involved, first and foremost, reorganizing the NTS by function, with the headquarters, local branches, and tax offices required to specialize in planning, investigation, and taxpayer services, respectively. One local NTS branch was shut down and 35 tax offices were either merged or abolished. The financial and human resources saved by these organizational reforms were reinvested in improving taxpayer services, including the establishment of taxpayer service centers and the Bureau of Taxpayer Support, and in appointing taxpayer protection officers. At the same time, the reorganization of the NTS by function minimized contact between local tax officials and taxpayers, thus drastically reducing tax-related complaints.

Significant strides were made in the area of automation and computerization as well during this period. The electronic data interchange (EDI) system was set up in 1998 to receive national taxes online. A national administration intranet was also established in 1999, dramatically improving the efficiency and productivity of tax services. The Home Tax Service was launched in 2001, and the NTS began to circulate newsletters via e-mail in 2003 to foster communication with taxpayers. The NTS Call Center was expanded and reorganized in 2003 into the National Tax General Call Center to provide better services for callers.

As Table 4-7 shows, the keywords of the tax reform drive during this period include “taxpayer,” “the people,” and “taxpayers’ convenience.” These keywords reflect the growing social awareness that taxpayers were no longer to be treated as mere passive objects of tax administration, but as autonomous and active participants in the tax administration system.
 
[Table 4-4] Chronology of Major Developments in Tax Administration (1998 to the Present)
 
Date Major developments
1998 -The Administrative Reform Committee (ARC) began to lead the campaign for identifying issues of reform in tax administration
-Improvements were made to the tax investigation system, including the pre-notification requirement, introduction of the taxpayer’s right to request postponement, and the participation of taxpayer-authorized representatives in the whole process; the accountability of administration was also enhanced
 
Oct. 1998 -The EDI system was created to receive national taxes online
1998-1999 -Active tax and administrative support was provided for structural readjustment (e.g., minimizing tax interferences in corporate mergers and acquisitions, providing tax benefits for SMBs, etc.)
-The Tax Evasion and Fraud Countermeasure Council was set up within NTS headquarters, and launched information-gathering task forces in tax offices nationwide
1999 -The NTS was reorganized by function (with 1 district branch shutting down and 35 of the 134 tax offices being merged or abolished)
-Taxpayer protection officers were appointed
-The National Tax Handbook was published, providing information on all areas of tax administration
Sep. 1999 -The NTS’ intranet was launched to improve the productivity of tax administration
1999-2001 -A nationwide tax records system was set up
-The Act on the Submission and Management of Tax Records went into effect (July 2000)
2001 -The Home Tax Service was launched as part of the e-Government project
-Most tasks of taxation began to be handled online (by April 2002)
Aug. 2001 -The Office of International Taxation Management was revived to review foreign currency transactions
2002 -The standard income rate system was replaced with the standard expense rate system
2001-2003 -The NTS began to invest in training international tax investigators and also reinforced the system of cooperation with the Financial Information Unit (FIU) and other authorities to facilitate investigations of persons suspected of tax evasion in tax havens
May 2003 -Special tax investigations were abolished and replaced by tax offense investigations
Aug. 2003 -Investigation consultants were appointed and the investigation organization was divided between units for execution and those for management
-The Real-Name System for National Tax Administration was launched to prevent under-taxation
Sep. 2003 -The NTS began to circulate e-mail newsletters in an effort to improve communication with taxpayers
Nov. 2003 -The NTS Call Center was expanded and reorganized into the National General Tax Call Center
June 2004 -The NTS began to post public announcements on the basic goals and criteria of tax investigation in advance
Oct. 2004 -Lists of large-scale, chronic delinquent taxpayers was released
-Data provided by financial institutions began to be used to check delinquent taxpayers’ assets and decide appropriate actions
2003-2005 -Corporate accounts for entertaining guests were now required to disclose the real names of the persons involved
-The range of tax items available for online reporting was expanded
-The System for the Integrated Management of Tax Representative Information was set up to encourage tax representatives’ active participation in online reporting
March 2005 -The Open Tax Administration Council was organized to hear taxpayers’ opinions
2005 -Resources and capabilities were concentrated on restraining real estate speculation and stabilizing property values
-Key issues on the policy agenda, including the cash receipt system and the general real estate tax, were implemented (accompanied by the necessary organizational, human, and technological resources)
-Principles of taxation were made more neutral to apply equally to Korean and non-Korean businesses
Oct. 2005 -The taxation system for self-employed persons earning high levels of income was reformed to render a fairer overall distribution of tax burdens
2006-present -Innovations are still being made in tax investigation operations
-Efforts are also being made to encourage taxpayers themselves to report and pay taxes in good faith
-The “Know Your Taxes” campaign was launched and an ombudsmen system was introduced to enhance citizens’ watch over tax evasion
-Tax administration, overall, was made more taxpayer-oriented, with new channels of participation opened online
-Tax collection divisions at tax offices were abolished, along with 31 investigation divisions, and the human resources from those divisions were redirected to other posts
-General real estate taxes and the cash receipt system remain key issues on the policy agenda
-The 3rd OECD Meeting of National Tax Directors was held and the Seoul Declaration adopted

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