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Small and Medium-sized Self-Employers Expecting “a Fearful New Year”

Small and Medium-sized Self-Employers Expecting “a Fearful New Year”

Posted December. 26, 2004 22:36,   


With the introduction of the cash receipt system next January, small and Medium-sized self-employed people are suffering hardships. Passed with the purpose of unearthing hidden tax sources and increasing the equity of taxation, due to the depression of domestic demand, small and Medium-sized distribution companies and restaurant owners are seeing the system as one that dangers their existence.

The Gap Between Large and Small Companies Will Widen-

The number of stores that issue cash receipts for transactions over 5,000 won is 450,000 as of the end of this year, and is expected to increase to a million next year.

Additionally, to increase the number of stores that issue cash receipts, the government has implemented a lottery system and has decided to give income deduction benefits at the level of that of credit cards. Income deduction benefits are subject to the sum of receipts of their spouse, children, parents, and others that have no income. Accordingly, the number of consumers requesting issuance is expected to grow.

Kim Gyoung-won, a manager of the Samsung Economic Research Institution, anxiously said, “As in the case of credit cards, customers will flock to large stores that freely issue cash receipts and avoid small and Medium-sized stores that are reluctant to issue cash receipts. As a result, the gap between them will widen,” and that “if the self-employed are suppressed, business sentiment might further deteriorate.”

The Rise in Prices and Worries over Side Effects Such as Doubled Prices-

Mr. Hong (38), who runs a Korean restaurant in the heart of Seoul, recently consulted a licensed tax accountant concerning the cash receipt system. His conclusion was that, to avoid tax investigation, he would inevitably have to issue cash receipts.

Mr. Hong said, “If the 400 to 500 million won in the annual sales of 1.2 billion won that was extracted from tax statements is disclosed due to the issuance of tax receipts, taxes will increase to over 100 million won from last year’s approximately 60 million won,” and that “to maintain the current level of profit, we will need to raise prices, even if we have to collude with nearby stores.”

Also, electronic goods stores such as Seoul Yongsan and Technomart that have a high percentage of undocumented transactions are adapting to the system with the strategy of “double prices,” discounting prices for customers who are not issued cash receipts.

The Ministry of Finance and Economy has presented to the National Assembly a tax preference bill that will return the total taxes of businesses that have over a 30 percent increase in sales next year compared to this year’s, and return half the taxes of businesses that have over a 30 percent increase in sales in 2006 compared to that of the year before. However, self-employed small- and Medium-sized businesses said, “Even if they cut the taxes for a few years, after that, sales will be exposed and taxes will have to be paid in full, and we will barely be able to extract our investment costs.”

Experts: “To Increase Taxes, it is Necessary to Decrease Tax Rates”-

Experts point out that to establish the cash receipt system and not endanger the livelihood of self-employed people, the tax rates of taxes such as value-added taxes and consolidated income taxes need to be lowered.

However, the government is not sharing with the public the degree of increase in taxes in 1999, when the government introduced the credit card tax deduction benefit and exposed many of the tax sources of the self-employed.

Economics professor Hyeon Jin-gweon of the social sciences department at Ajou University explained, “The current tax rate was fixed under the assumption of ‘tax evasion,’ and if tax sources become transparent, such measures that result in a reduction in tax rates, tax cuts should be promoted,” and that “if such measures are not taken, those in low income brackets such as small- and Medium-sized self-employers will face further difficulties.”