A key part of the incoming Park Geun-hye administration’s fiscal policy is to cover 6 trillion won ($5.7 billion) each year of its increased welfare budget with taxes collected from the “underground economy.”

For this, the National Tax Service is preparing to gain more access to the Financial Intelligence Unit’s information on cash transactions and conduct tax inquiries on sectors highly suspected of tax evasion.

“We first need to establish the necessary infrastructure ― that is, greater access to cash transaction information,” said an NTS official.

“Then we will look into the cash transactions of individuals and companies that are suspected of tax evasion including businesses run by criminal organizations as well as dentists that perform only orthodontic treatments and other clinics that often take cash to underreport their income.”

In its report to the presidential transition team on Saturday, the NTS is set to explain its key tasks to share FIU information (to collect up to 5 trillion won in tax revenue), tighten crackdowns on adulterated gasoline (500 billion won) and prevent offshore tax evasion.

The NTS is expected to request for full-scale access to FIU information and a significant increase in investigative staff. The NTS currently cannot look up people who deposited or withdrew over 20 million won in one day, for example.

The FIU also receives reports on large cash transactions by delinquent taxpayers, which the NTS hopes to get its hands on in order to collect up to another 1.5 trillion won in taxes.

Lawmakers including Rep. Lee Han-koo of the Saenuri Party have submitted a revised bill that requires the FIU to hand over all the large cash transaction data to the NTS.

“In addition to tracking down tax evaders, I believe a bigger effect (of the upgraded financial infrastructure and tax inquiries) would be prevention since many people would stop evading taxes in order to avoid getting caught,” the NTS official said.

The NTS also plans to require real estate buyers suspected of tax evasion to prove where they got the money from. If they fail to prove the source of the funds, the acquisition will be regarded as a gift, subject to gift taxes of up to 50 percent.

Some officials in the Financial Services Commission, however, are concerned of the possibility that complete NTS control of personal financial information could stir a “Big Brother” controversy or resistance from self-employed people.

Taxation targeting people who deposited or withdrew over 20 million won in a day, for instance, could cause confusion on customarily untaxed areas such as money lending between family or relatives, business premiums traded between shop owners, and monetary gifts for funerals or weddings.

The size of Korea’s unreported, untaxed economy ― which includes illegal activities including drug trafficking, prostitution, illegal private lending, speculation, bribery as well as tax evasion ― is estimated to be over 300 trillion annually.

According to Friedrich Schneider, a professor at Austria’s Johannes Kepler University of Linz, Korea’s shadow economy accounted for 24.7 percent of GDP in 2010, the fifth largest among OECD member countries and close to that of Greece (25.1 percent).

By Kim So-hyun (sophie@heraldcorp.com)