Sub-Theme 2 | Cash Receipt System
Introduction of Cash Receipt System
Even though the Credit Card Income Deduction Program began promoting credit card spending from 1999, in 2004 cash transactions still made up around 50% of total domestic private consumption expenditure. The Korea government thought that it was necessary to develop a more innovative way to legalize the underground economy and introduced the Cash Receipt System in 2005. This program was designed to expose cash transactions by offering an incentive to consumers even if they pay in cash. Further, business owners could also have some tax benefits if they issued cash receipts.
How the System Works
It is compulsory for a retailer whose primary business is conducted with consumers (e.g. restaurants and convenience stores) to register as a cash receipt issuer unless its annual sales revenue is less than 24 million Korean won (₩24,000,000 approximately USD 20,000). Thus, almost all stores except small-scale businesses have to be registered.
If a consumer purchases goods and services in cash and presents a cash receipt system card or his/her mobile phone number for issuance of a cash receipt, the registered store has to report the cash transaction to a Cash Receipt System Operator, which installs cash receipt devices at registered stores to collect cash transaction data. The operator then sends all the data collected from the stores to the National Tax Service (NTS) at least once daily. Such data are used to track taxable business income by comparing reported business income from registered stores.
The Cash Receipt System could be implemented with the help of advanced information technology infrastructure and a well-equipped credit card system. A new chip, easily installed into the credit card device, was developed to connect registered stores and system operators, and the transmission of cash transaction records is operated through the existing credit card terminal network. The NTS provided the chips free of charge to registered stores and new credit card devices were manufactured with the ability to provide cash receipts.
Incentives for Consumers, Issuers, and Operators
Credit card purchase amounts and cash receipts issued from cash purchases are both considered in the income deduction of earned income taxpayers. There was little difference between cash receipt purchases and credit card purchases in the early stages of the Cash Receipt System in terms of income deduction. However, the deduction rate of cash receipts (30%) has been two times that of credit cards (15%) since 2012. The purpose of this differentiation was to mitigate household bad debt problems resulting from overuse of credit cards.
Cash receipt registered stores are eligible for Value Added Tax (VAT) credit of 1% of the total amount for which cash receipts are issued within a maximum amount of 5 million Korean won (₩5,000,000 approximately USD 4,167) for a year. Furthermore, 20 Korean won (₩20 approximately USD 0.02) is deducted from business income per cash receipt issuance if the purchase amount is less than 5,000 Korean won (₩5,000 approximately USD 4.17).
Cash Receipt System Operators receive VAT tax credit of 17,500 Korean won (₩17,500 approximately USD 14.58) per cash receipt terminal installed. Moreover, additional VAT credit of 18.7 Korean won (₩18.7 approximately USD 0.0156) is granted per issue of paper receipt and 13.2 Korean won (₩13.2 approximately USD 0.011) per online issue to cover transmission cost to the NTS.
If a registered store declines to issue a cash receipt, 50% of the unissued amount is imposed as a penalty. At the same time, an individual who reports a registered store’s violation of cash receipt issuance will receive 20% of the unissued amount as a bounty. This bounty system works to ensure stores issue cash receipts without trying to offer discounts to customers in return for no cash receipts.