Gov’t set to ‘normalize’ black markets

President-elect Park Geun-hye

The nation’s tax agency plans to bring the underground economy into the open in order to normalize “black markets” and expand tax revenue base to support the welfare budget of the incoming government, according to sources, Sunday.

The National Tax Service (NTS) reported Saturday to President-elect Park Geun-hye’s transition team its plan to investigate the black market currently estimated to be worth up to 400 trillion won.

During her election campaign, in order to secure funds to back her welfare plans, Park pledged to focus on expanding tax revenue by policing the underground economy and tackling tax evasion rather than increasing taxes.

“Normalizing the underground economy for tax revenue expansion was part of our report to the President-elect,” said a high-ranking official of the National Tax Service (NTS) on condition of anonymity.

Sources say the NTS is seeking to have more access to financial data collated by the Financial Intelligence Unit (FIU) in order to crack down on tax evasion on the black market, where a huge amount of trading is done in cash. The underground economy is estimated at between 300 trillion won and 400 trillion won, according to the tax agency.

The tax agency is allowed look into the FIU’s transaction and settlement data only when there are suspicions that people are involved in tax evasion, but it is not allowed to share its data on large cash-based transactions. A related law allowing for greater access to the data is pending at the National Assembly.

Park vowed to provide nursery and education services for free from new-born babies to five-year-old children regardless of parents’ income, which will require trillions of won in additional funds every year.

The NTS agency also plans to beef up monitoring on tax evasion among high-income earners and offshore tax dodging by businesses. Professionals, such as lawyers, doctors and accountants, have been key targets of the tax agency over the last few years for unreported income.

The NTS has already geared up for crack down on companies which attempt to transfer their assets illegally to other countries to evade taxes. To detect them more efficiently, it has signed cooperation agreements with authorities overseas, including those in Switzerland, which had long declined to provide banking information.

“We need to first tackle the deep-rooted tax evasion structure in our society in order to regularize the underground economy,” said Lee Hyun-dong, head of the NTS, during a New Year’s speech.

The move came amid growing concerns the government might not be able to collect as much taxes as it planned due to slowing economic growth. The 216.4 trillion won tax revenue that the government earlier forecast to collect is based on the assumption that the economy will grow 4 percent. Late last year, the government revised down its growth outlook to 3 percent, raising worries that tax revenue might fall short of the forecast.

Park got the report from the NTS earlier than the finance ministry, which supervises the agency. <The Korea Times/Kim Jae-won>