Abstract

The rapidly growing domestic used goods market is emerging as a key driver of the circular economy. However, its growth is being hindered by the structural limitations of the current Value Added Tax (VAT) system. This paper provides an in－depth analysis of the problems of the current system, including double taxation, tax imbalance between different items, and weakened export competitiveness, and proposes the full－scale expansion of the deemed input tax deduction system as a core solution. Under the current VAT law, used goods sellers cannot deduct input tax as they are unable to receive tax invoices from non－business sellers (e.g., individuals), leading to a double taxation problem upon resale. This violates the fundamental principle of VAT, which is to tax only the value added. Furthermore, the deemed input tax deduction, which is currently limited to used cars, creates an issue of tax inequity compared to other used goods. The inability to claim input tax deduction also leads to non－refundable VAT on exports, weakening international competitiveness. Based on this critical awareness, this study analyzes the cases of Switzerland and Japan to argue that the deemed input tax deduction is not a tax privilege but an essential mechanism for restoring the logical integrity of the VAT system. Switzerland consistently applies its unique deemed input tax deduction system to tax only the actual value added, while Japan reflects the realistic characteristics of used goods transactions by allowing flexible special provisions for input tax deduction based solely on book records. This research suggests that policy improvements are necessary, including expanding the system to all used movable goods, adopting a full deduction method by multiplying the purchase price by 10/110, and streamlining administrative procedures. Such improvements are expected to resolve the issue of double taxation, enhance tax equity, and promote the sustainable growth of the used goods market, ultimately contributing to the revitalization of the circular economy and the realization of tax justice.

Keywords

• Used Goods Market
• Value Added Tax (VAT)
• Deemed Input Tax Deduction
• Double Taxation
• Circular Economy
• Tax Justice

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