How to encourage the self-employed taxpayers to pay taxes on a bonafide basis
Asian Tax Journal Vol. 6 No. 3 (2005), pp. 7-28
Abstract
In this study, a research has been made on the statistics and status of under reporting of business profits by self-employed taxpayers and the current regime used for encouraging their bona fide (i.e., sincere) tax reporting and payments. Based on analysis on the contents of preceding studies, we develop and suggest various new action plans for encouraging self-employed taxpayers to make bona fide tax reporting/payments as follows. First, the frequency of interim payments of business income tax is to be increased from once to two or three times. Second, a tax prepayment system is to be introduced. Under this system, if a taxpayer makes a prepayment in excess of the interim tax amount due, an amount equivalent to or higher than the interest on the overpaid interim taxes for the prepayment period will be credited against the taxpayer's future tax liability. Third, a smoothing system of tax payments for bona fide taxpayers is to be introduced. Under this system, a taxpayer whose tax liability has radically increased and who is qualified as a bona fide and good taxpayer in accordance with certain criteria will be allowed to pay the increased portion of the tax liability in installments over several years or to enjoy a tax credit on a certain portion of his/her tax liability. Fourth, in a tax audit, the degree of his/her bona fides (i.e., sincerity) in tax payments is to be evaluated, and then, the audit results are to be treated differently depending on the degree of bona fides evaluated as such. For example, in the case where the degree of the taxpayer's bona fides is evaluated as very high, any trivial error or mistake by him/her/it will be waived in imposition of additional taxes. On the contrary, if the degree of his/her bona fides is evaluated as very low, additional taxes coupled with heavy penalty taxes will be imposed on all the amount of tax evasions, and moreover, he/she/it will be subject to disciplinary actions under the Tax Evasion Punishment Act. Fifth, a relief system for a bona fide taxpayers to be introduced for transactions on which no input tax invoice is received. Under this system, in case that a taxpayer who fails to receive an input tax invoice due to certain reasons wishes to report the transaction with seller's name, business registration number, transaction date, transaction prices by the regular due date of the VAT returns for the said transaction, he/she/it may report the said transaction in his/her/its regular VAT return without any penalties for lack of supporting documentation as far as it is confirmed that the transaction has actually been made. Sixth, a system for encouraging taxpayers to report voluntarily the transactions on which output tax invoices cannot be issued due to some inevitable reasons is to be introduced. Seventh, in the case where a taxpayer is determined as a qualified bona fide taxpayer for a certain fiscal year in accordance with tax authority's guidelines, he/she/it is to be permanently exempted from tax audit for the said fiscal year unless there is any specific reason. Under the current system, tax audits will not be performed for 1~3 years from the year when he/she/it is nominated as a bona fide taxpayer, but after the audit-waiver period, he/she/it can be audited retroactively over all the years within the statutory limitation. Accordingly, no real benefits of tax audit exemption maybe enjoyed in many cases. This new system can be to supplement the current system for the exemption of a tax audit on bona fide taxpayers. We hope the above-listed suggestions will be considered and reflected in developing and improving the system for encouraging bona fide reporting/payments of income taxes.
Keywords
- bona fide tax reporting/payments
- tax prepayment system
- tax smoothing system
- bona fide taxpayer
- mileage points in tax payment
- tax invoices for sales in cash
Related Articles
A Study on Sanctions for the Incorrect Tax Invoice, on its Excessiveness and Mismatch
25(4) 53-76
A Study on the Eradication Plan of Tax Invoice Trader
24(6) 109-132
Tax Administration Enhancing Taxpayers’ Right and Cooperative Taxpayer－tax Authority Relationship focusing on Compliance Verification System
22(5) 9-25
The Effects of Taxpayers’Personal Ethics, Social Norm, Social Identification and Tax Investigation on their Tax Compliance
20(3) 9-42
Tax Avoidance and the Value of Cash Holdings
19(1) 143-172