By Lee Hyo-sik
Staff Reporter
The government said Wednesday that it will overhaul the country's tax collection system to better track down earnings of the self-employed and impose due taxes on them.
Through a range of changes in the taxation system, it plans to trace up to 80 percent of income of independent business owners by 2016, up from last year's 56 percent, while increasing the proportion of the taxpaying self-employed to 70 percent from the current 55 percent.
The government has been criticized for years, particularly from salaried workers, for its inability to trace the earnings of doctors and other high-income self-employed, and levy proper taxes.
Wage earners have complained that the government is not going after the tax evading self-employed as collecting from them is harder than imposing new taxes on salaried workers. They insisted that rather than blindly raise income tax rates on wage earners to increase revenue, the government should target the self-employed and small businesses, which underreport their earnings.
According to the Ministry of Finance and Economy, the government plans to introduce a number of new measures and improve the existing tax collection regime to more precisely track down the income of the self-employed. It aims to increase the proportion of traced income to the total by 3 percentage points every year from 2009 through 2016 to 80 percent.
``It is important to establish fairness in the taxation system for both salaried workers and self-employed business owners. We will continue to make efforts to increase transparency concerning tax sources through the implementation of our long-term roadmap,'' a ministry official said.
First, the government plans to abolish the minimum limit of cash receipts that must be issued to customers, requiring shops and other small businesses to issue receipts regardless of the amount. Currently, businesses are only obliged to provide cash receipts for purchases worth 5,000 won and above.
It will also allow salaried workers to deduct greater debit and credit card expenditures from their income tax to encourage them to purchase goods and services through cards, making it easier for tax authorities to trace earnings of small businesses accepting cards.
The government plans to provide a 1 million won reward to those who report real estate, bank accounts and other properties registered under the name of a third person in a bid to evade taxes.
It will also continue to apply the reduced value-added tax rates on the self-employed engaging in retail, food and lodging businesses until the end of 2009, to lessen tax burdens on small-scale independent businesses.
Normally, the self-employed earning less than 48 million won per year are required to pay from 20 to 40 percent of their earnings as VAT. But under the current special regime, small businesses need to pay between 15 percent and 30 percent.