SEOUL, KOREA - A study said the share of the tax collected in a year is only 48 percent of what the government is capable of collecting. It further estimated the portion of small business owners evading taxes is 38.2 trillion won, accounting for almost a half of the "shadow economy."

 

In a report "Strengthening Tax Collection in the Shadow Economy" published by LG Economic Research Institute on November 26, Cho Young-Mu, the institute's research fellow, said, "The Korean government is collecting only 48 percent of its maximum collectible tax revenue. Comparing to other countries, including developed nations whose percentage is about 70 percent, middle-income nations such as China and Brazil (69%), and low-income nations (63%), this is way below the standards."

 

Cho further said, "This is largely because self-employed small business owners evade taxes with abandon." According to Friedrich Schneider, professor at the Johannes Kepler University of Linz, Austria, and a world-renowned expert on the issue of the shadow economy, the percentage of the shadow economy in Korea is 24.7 percent as of 2010. This is higher than any other countries such as the United States (9.1%), Japan (11.0%), the UK (12.0%), and Australia (13.4%). The figure is higher than that for the OECD average of 18.3 percent.

 

That's largely because small business owners underreport their incomes seriously. According to estimates by Prof. Schneider, small business tax evasion accounted for 44.3 percent of all shadow economy in Korea (as of 2010). This figure is highest among 38 OECD member nations and about twice that for the OECD average of 22.2 percent.