Small businesses routinely fail to report transactions to minimize their income, thus avoiding sales tax and income tax. Add comparatively low tax rates and you get a huge headache for policymakers trying to fund a welfare system. Credit cards may be the solution. Unlike cash purchases, they leave a paper trail that allows the taxman to nab evaders. The National Tax Service receives data on card transactions from credit-card companies, and checks this against income declarations by small businesses.
Discrepancies trigger a request for a second declaration.
The NTS doesn't see this as a violation of privacy, as the information supplied by the credit-card companies consists only of the name of the business, the date of the transaction and the amount paid. Nothing is revealed about the purchaser. There hasn't been any notable protest on confidentiality grounds. In fact, most people seem swayed by the tax service's estimate that the policy will add 2 trillion won every year to the total tax take of 70 trillion won. But these gains could be compromised if overdue credit-card bills keep rising.