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신용카드 활성화 정책 10년(Credit card stimulation policy in Korea) : 평가와 과제(Assessment and recommendations)

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  • 신용카드 활성화 정책 10년(Credit card stimulation policy in Korea)
  • 김재진; 홍범교
  • 한국조세재정연구원


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Title 신용카드 활성화 정책 10년(Credit card stimulation policy in Korea)
Similar Titles
Sub Title

평가와 과제(Assessment and recommendations)

Material Type Reports
Author(Korean)

김재진; 홍범교

Publisher

[서울]:한국조세재정연구원

Date 2012-12
Pages 358
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Holding 한국조세재정연구원

Abstract

The South Korean government has introduced a set of tax incentives that aims to stimulate credit card usage to improve the poor tax compliance level by self-employed. This, so-called, “Credit Card Stimulation Policy” includes “Income Deduction for Credit Card Usage”, “Credit Card Receipt Raffle System”, “VAT Credit” and “Tax Credit on Increased Revenue Amounts”.
As a result of the stimulation policy, credit card has become the most common payment medium in Korea. In 2010, the amount of credit card transactions made 57.0% of the private consumption expenditure in Korea. It is a huge increase from the pro-policy figure of 14.7% in 1999. Increased credit card usage in private sector has helped the Korean tax department to track down revenues realized by self-employed more accurately.
In particular, it has improved collection of “Global Income Tax” and “Value Added Tax (VAT)”. In 2000~2009, elasticities of tax revenue for “Global Income Tax” and “Value Added Tax” are 1.98 and 3.21, respectively, while the tax elasticity for the whole tax system is 1.16. It means that tax revenue growth in “Global Income Tax” and “Value Added Tax” is much higher than economic growth and general tax revenue growth. The policy has also helped to increase the number of self-employed tax payers and broaden the tax bases, even in industries where predominantly handling cash-revenue, such as food service and retail. It has also achieved reducing the number of tax payers under minimum tax floor and income threshold.
Despite the positive results, costs of sustaining the tax incentive and credit card transactions have been exponentiated as the credit card transactions increased over the time. In 2000~2010, it is estimated that the costs of the stimulation policy reached staggering 72 trillion won. It is consisted of the cost of credit card transaction processing fee paid by merchants, 53 trillion won and the tax expenditure paid by the government to sustain the tax incentive system, 19 trillion won. Moreover, it created many delinquent borrowers as the credit card industry has set a poor credit card issuing criteria, in hoping to take advantage of the credit card stimulation policy. As a result, in 2003, Korea suffered from so-called “Credit Card Crisis”. Approximately 3.72 million people were classified as delinquent borrowers and the government injected 6 million won to provide the contingent financial aid for them.
Furthermore, the credit card stimulation policy has induced the market inefficiency as it was initiated without much consideration of the poor credit card industry structure and credit finance legislation in Korea. As a result of the market inefficiency, merchants in Korea pay expensive credit card processing fee in OECD countries. Also, credit card industry charges merchants the processing fee not by a systematic industry standard, but by their bargaining power. The credit finance legislation imposes “Honor All Cards” and “No Surcharge” rules on merchants with the enforcement penalty. These rules limit merchants to transfer costs of accepting credit cards to their customers and it is against the “Benefit Principle”.
This study evaluated that the credit card stimulation policy has achieved its objective. It made labor-income earning tax payers to use credit card widely in their consumptions and resulted in a better tax compliance level for self-employed. However, due to costs of tax incentives and transaction processing fee, credit card is the payment medium that imposes the highest cost in Korea.
Therefore, the South Korean government needs to shift its stimulation policy toward the payment medium that is more cost-effective, whilst improving the tax compliance level for self-employed. Stimulating debit (or cheque) card could be an answer as it imposes less costs than credit card. As the transaction mechanism for debit (or cheque) card is the same as credit card, it is expected to maintain the tax compliance for self-employed that was achieved by the credit card stimulation policy. To do this, the current tax incentive for credit card usage should be abolished or lessened. Then, it should apply more generous tax incentives for debit (or cheque) card usage. Moreover, to correct the market inefficiency existing in the current credit card industry in Korea, the government needs to reform its credit finance legislation and promote competition within the industry. In Australia, it achieved setting a lower credit card processing fee for merchants by abolishing “Honor All Cards” and “No Surcharge” rules and promoting the competition within the industry.