[Op-Ed] Tax Cooperation Costs

U.S. tax-related groups have researched tax cooperation costs. The results of their studies say expenses for paying taxes amount to 10 to 24 percent of tax revenue. Based on these results, they have urged Washington to cut tax cooperation costs, or the economic and time expenses taxpayers must bear to work on tax reports or issuing or keeping tax invoices. The group Tax Foundation estimates that corporations and individuals spend six billion hours in making federal tax documents equal in value to 265 billion U.S. dollars.

According to a survey by the U.S. Small Business Administration, corporate costs for tax cooperation reached an average 894 dollars in 2004 while that for small businesses with 20 or fewer employees was nearly 50 percent higher at 1,304 dollars. In a given country, the higher the taxpaying costs are, the more trouble small businesses face in paying taxes. Studies suggest that two-thirds of tax cooperation costs stem from the process of keeping and storing records. In the U.S., the government has to check how tax cooperation costs change every time a tax law is made or revised. The country has more than 20 years of experience in studying the issue.

In Korea, a joint study by the National Tax Service and the state-run Korea Institute of Public Finances found that tax cooperation costs accounted for 4.6 percent of taxes paid in 2007. While the results cannot be directly compared to U.S. data because of differences in research methods and standards, there are similarities. “Issuing and receiving tax invoices and bookkeeping cause much of the costs,” said Park Myeong-ho, a team leader at the institute. “If we assess which clauses of the tax law cause the high cost and revise them in accordance with annual targets, deregulation will produce good results.”

If tax authorities simplify the tax reporting process and allow taxpayers to file their taxes online, expenses could be greatly reduced. Doing so would also not affect tax revenues at all. The government has allowed companies to report a business suspension or closure through the Internet and issue electronic tax invoices. More should be done, however to reduce the burden on taxpayers.

Editorial Writer Hong Kwon-hee (konihong@donga.com)