Underground Economics Korea’s Underground Economy Places 6th among OECD Member Countries

Policies are urgently needed for the legalization of the underground economy,” said Representative Oh Je-se of the New Politics Alliance for Democracy, who belongs to the Planning and Financial Committee of the National Assembly on Sept. 10. Rep. Oh added that Korea places sixth among OECD member countries in terms of the size of underground economies.

According to Rep. Oh, Korea’s underground economy accounts for 26.3 percent of the Korean economy. This percentage outweighs 18.4 percent, the average of the OECD, by 7.9 percentage points. It is also more than double that of Japan (11 percent) and more than triple that of the U.S. (8.7 percent). Korea is similar to Greece, since both countries have a low tax burden and tax rates, poor social welfare, deepening financial polarization, high corruption level, and a big underground economy, Rep. Oh added.

“Korea’s tax probe rate is much lower compared to those of advanced countries such as the U.S. and Japan. This contributes to the big size of Korea’s underground economy,” Rep. Oh pointed out. “Korea’s tax investigation rate is 0.94 percent for corporations. The rate is lower than that 1.33 percent of the U.S. and 3.28 percent of Japan,” Rep. Oh explained. “In terms of self-employed operations, the rate of Korea stands at 0.09 percent, which is less than the half of that of the U.S. and that of Japan.”

Another problem is a steady drop in Korea’s tax probe rate. Ten years from now, in 2005, the rates were 1.8 percent for corporations and 0.18 percent for self-employed operations. But in 2014, the two stood at 0.94 percent and 0.09 percent, respectively. “The National Tax Service needs to make national tax information transparent,” Rep. Oh continued. “The U.S. provides taxation information at the request of taxation-related committees of Congress. Norway, Sweden, and Finland make public taxation information of all of their citizens.”

On the other hand, Rep. Yoon Ho-jung, of the same party, said that 166 public workers at the Korea National Tax Service were punished for taking bribes from 2012 to June 2015. This figure is on the rise. In detail, 464 Korea National Tax Service workers were punished for taking bribes, bad work ethics and dereliction of duty. Those punished for taking bribes accounted for 35.7 percent.