without having to visit a tax office<sup>31</sup> (the NTS, 2002). The rate of electronic tax filing through Home Tax System reached 96.9 percent for corporate income taxes, 79.8 percent for individual income taxes, and 78.6 percent for VAT in 2007 (the NTS, 2007), just before the introduction of compulsory ETI in 2008.

In addition to electronic tax administration, the Ministry of Finance and Economy and the NTS introduced a series of measures to encourage electronically traceable payments such as credit cards and check (debit) cards, thereby helping to broaden the tax base in B2C transactions, which are prone to falling into the informal economy. Tax incentives were given from 1999 to wage earners for using electronically traceable payment methods, which encouraged them to demand businesses to accept traceable payments. The basic incentive structure was to allow a predetermined fraction of purchases<sup>32</sup> made using credit or check cards as deduction from taxable wage income when they filed income tax returns. In 2005, cash payments under certain conditions were included as an electronically traceable payment. This worked by a consumer paying cash for goods and services and asking the merchant to issue electronic cash receipts through their payment terminals and transmit the transaction data to the NTS. An incentive that was similar to that given for credit card purchases was also given to this electronically traceable cash payment.

The use of electronically traceable payments in B2C transactions has been very successful in broadening the tax base. The number of transactions using credit cards soared 57.6 percent annually from 1998 to 2003.<sup>33</sup> In value terms, credit card usage increased at an annual rate of 47.7 percent during the same period.<sup>34</sup> As a result, since 2005, the total amount of credit card transactions relative to the GDP has exceeded 30 percent, the highest among the 23 member countries of the Committee on Payment and Settlement Systems, Bank for International Settlements.<sup>35</sup> Song and Sung (2012) estimated that the introduction of tax credit for electronically traceable payment methods increased tax revenues by KRW880 billion in 2009: an increase of KRW2.3 trillion in broader tax base but a decrease of KRW1.4 trillion in tax revenue forgone for tax credits. Because of the success in encouraging electronic payments in B2C, the electronic tax invoice became an obvious candidate for B2B, an effective

> 31 Taxpayers now can file 12 tax returns and pay taxes including VAT and individual and corporate income taxes, obtain 23 different types of certificates, and file more than 100 tax-related applications through Home Tax Service (http://www.hometax.go.kr).

> 32 When the incentive was introduced in 1999, 10 percent of the credit or check card purchases in value term (not exceeding KRW3 million) above 10 percent of the total wage income were eligible for income deduction. As of 2013, 15 percent of the credit card purchases exceeding 25 percent of the total wage income were eligible for income deduction.

> 33 The Bank of Korea (2013) Statistics on payment, clearing and settlement in Korea (in Korean); 34 Ibid.

35 Card payments (except e-money) relative to the GDP came to 30.5% in 2005 and 38.5% in 2008 when the mandatory ETI was introduced in Korea. It reached 41.8% in 2013; data from the Committee on Payment and Settlement Systems, BIS (each year _), Statistics on payment, clearing and settlement systems in the CPSS countries._ 17