Room Salon VAT, Card Company Charged Me and Delinquent Amounts Plummeted

[Sejong=Asia Economy Reporter Kim Hyunjung] Since credit card companies were made to pay the value-added tax (VAT) on behalf of room salons and entertainment bars, there has been a significant decrease in tax arrears. As the effect of preventing tax evasion has been confirmed, there are also claims that the scope of application should be expanded to areas such as real estate capital gains tax.

According to data submitted by the National Tax Service to Yang Kyungsuk, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, the amount of VAT revenue from entertainment and Danran bars (excluding simplified taxpayers) deposited into the national treasury in 2019 was 143.4 billion KRW, an increase of 36.7 billion KRW (34%) compared to the previous year. During the same period, VAT arrears from entertainment and Danran bars decreased by 80%, from 50.1 billion KRW to 9.9 billion KRW.

Yang analyzed that this increase in tax revenue and decrease in arrears was the effect of the proxy payment system through credit cards implemented in 2019 for VAT on entertainment and Danran bars.

The proxy payment system through credit card companies is a method where the card company deducts VAT in advance from the card sales amount used at entertainment and Danran bar franchises and pays the tax authorities on behalf of the franchise.

Until 2018, VAT collection from entertainment and Danran bars relied on the business operator’s declaration, but after the proxy payment system through credit card companies was implemented in 2019, evasion and arrears decreased.

Yang explained that the purchaser payment system, which was introduced in 2008 for gold transactions with a similar purpose and has since expanded, also achieved the same effect. The VAT purchaser payment system is a system where the purchaser deposits the VAT into a designated financial institution’s dedicated account instead of paying VAT to the seller, and the amount is then paid into the national treasury.

The amount of VAT deposited into the gold dedicated account increased from 20.8 billion KRW in 2008 to 150.1 billion KRW last year, and the amount deposited into the dedicated account for various scraps (metal scraps) also increased from 258.5 billion KRW in 2014, when the purchaser payment system was introduced, to 980.3 billion KRW last year.

Regarding this, Yang proposed, "To prevent large-scale tax evasion per case in real estate capital gains tax, active consideration should be given to applying related systems."

This content was produced with the assistance of AI translation services.