After the appointment of Administrator Lim Kwang-hyun, who previously served as a member of the National Assembly, changes are being detected within the National Tax Service. The National Tax Service is a government organization responsible for the state finances, which are the foundation of the nation's economy. According to tax laws, it possesses the powerful authority to impose and collect taxes, and is often referred to as one of the 'four major power institutions' alongside the prosecution, police, and National Intelligence Service.
The National Tax Service has previously shown a passive stance in policy matters, exercising only its enforcement functions. However, it has recently begun to raise its voice in policy areas such as the tax system. After Administrator Lim Kwang-hyun's appointment, the National Tax Service held two briefings on the initiation of tax investigations, during which it actively proposed policy suggestions each time. Officials have evaluated that 'the National Tax Service has changed.'
On the 29th of last month, during a briefing on tax investigations of unfair tax evaders in the stock market, it was stated that 'we will discuss measures to disclose the details of unfair tax evasion in the stock market so that all investors can adequately verify them with the relevant agencies.' This means that the National Tax Service aims to include tax evasion in the 'Report on Key Matters' that must be disclosed under the Capital Markets Act in consultation with the Financial Services Commission.
During the briefing on the 'tax investigation of foreign investors acquiring high-priced apartments in major areas of Seoul' on the 7th, it went a step further. The briefing announced the initiation of a tax investigation into 49 foreigners who acquired high-priced real estate in Seoul by securing funds through methods such as illegal gifting and income concealment.
The content regarding the 'background of the initiative', 'types of tax evasion', and 'direction of the tax investigation' was not different from previous briefings. What was different was the 'consideration for institutional improvements' that came at the end of the briefing. The briefer, Democratic Party lawmaker Moon Joon-young, stated, 'We will review any institutionally unreasonable or insufficient parts and actively propose improvements to relevant agencies,' and disclosed the contents examined by the National Tax Service.
Specifically regarding foreign real estate purchases, it publicly suggested the need for two amendments to income tax laws: ▲ exclusion of tax exemptions for rental income for non-residents who own one dwelling, and ▲ restrictions on tax exemptions for capital gains tax for foreigners who have resided in Korea for less than a specified period (5 years).
Additionally, it proposed revising the Immigration Control Act to refine the obligation for foreign household registration and suggested that when foreigners acquire dwellings, they should share their funding plans and supporting documents with the National Tax Service for continuous verification.
It is quite unusual for the National Tax Service to publicly propose improvements to tax law blind spots. The Ministry of Economy and Finance oversees the tax system, and the National Tax Service is an affiliated agency of the Ministry of Economy and Finance. From the perspective of the Ministry, it may be displeasing that the enforcement agency, the National Tax Service, has publicly demanded a tax reform.
In fact, it is reported that the Ministry of Economy and Finance lodged a protest with the National Tax Service immediately after the briefing press release was distributed. The Ministry announced its tax reform plan on the 30th of last month, just under 10 days prior, and the public proposal for a reform of the real estate tax could be seen as exposing the shortcomings of the tax reform plan.
Amid criticism forming in the capital market regarding the recent tightening of the capital gains tax criteria for significant shareholders, the National Tax Service's indication that the tax system related to foreign tax evasion and real estate issues is inadequate is likely unwelcome to the tax policy office.
In official circles, interpretations suggest that Administrator Lim Kwang-hyun, who was President Lee Jae-myung's tax advisor, has signaled that the National Tax Service will actively express opinions on tax issues going forward. After taking office, Lim's first directive was the launch of the 'Future Innovation Promotion Team'. The National Tax Service announced plans to establish a 'System Improvement Subcommittee' within this team to pursue the 'discovery of tax reform measures centered on the field' and to 'improve tax administration regulations and guidelines to suit the changing times.'
It is often said that the answer lies in the field. There are likely many tax blind spots discovered by National Tax Service employees who enforce tax collection and manage delinquencies. To prevent tax evasion from slipping through the cracks like an eel, these field opinions must be actively reflected in the tax system. It is hoped that this will not deteriorate into a turf battle between the tax policy office and the National Tax Service but will serve as an opportunity to establish fair taxation.