recorded in the CRs.<sup>7 , 8</sup> This contradictory move by tax authorities provoked friction with taxpayers, criticism from the public, and distrust against government policies and authorities. In addition, consumers’ tendency to neglect to obtain receipts did not change substantially. Despite compensation for obtaining CR receipts, consumers did not actively do so because the application process for receipt compensation was cumbersome and inconvenient and the economic benefit was relatively small.<sup>9</sup> Even worse, finding the system ineffective, the Korean government abruptly abolished CR receipt compensation after only three years, thus eliminating the only incentive for consumers to learn over the long term the benefit of obtaining receipts.<sup>10</sup> Distrust between taxpayers and tax authorities, low tax morale of taxpayers, repeal of receipt compensation, and even functional defects in CRs eroded the effectiveness of the cash register policy. Following the presidential and parliamentary elections in 1978, tax authorities sought to reduce friction with taxpayers, and in the early 1980s they reduced and almost totally suspended investigation into and penalties for failure to issue receipts.<sup>11, 12</sup> In 1988, the mandatory use of cash registers was _de facto_ abolished, on the reason that it had been enforced for the convenience of tax administration and that it in fact discouraged issuing and receiving receipts, despite its original objectives,<sup>13</sup> after a number of swings between strong enforcement and soft encouragement. In 1993, the article in the VAT law making CR use mandatory was officially deleted and changed to support voluntary use of CRs.<sup>14</sup> Tax credits to business sellers for issuing CR receipts (0.5 percent of concerned sales) were maintained to encourage voluntary CR use. In 1996, however, even the tax credit for CR receipts was repealed as CRs had proven ineffective in reducing underreporting of cash sales.<sup>15</sup>

> 7. A news article in the _Kyunghyang Shinmum_ (September 27, 1979) reported that cash registers became useless due to the businesses’ neglect in issuing receipts and consumers’ lack of awareness of receipts. It also reported that fewer than 1 in 10 customers in restaurants obtained receipts, and no one obtained receipts in grocery stores. According to a taxpayer who equipped his business with a very expensive cash register at the urging of tax officials, tax inspectors did not assess taxes based on the cash register records but levied a 20 percent additional tax.

> 8. “Equipped with an Expensive Cash Register but Distrusted,” _Dong‐a Ilbo,_ February 20, 1979.

> 9. “Urgent to Make Receipt Exchange a Practice After One Year of Campaign,” _Mail Economy,_ February 7, 1978. 10. “Receipt Compensation Abolished from Next Year After Three‐Year Trial with Less Effectiveness,” _Dong‐a Ilbo,_ September 24, 1979.

> 11. “Lost Enforcement of Cash Registers,” _Mail Economy,_ March 19, 1980.

> 12. “Retarding VAT,” _Dong‐a Ilbo,_ April 14, 1981.

> 13. “Retailers, Allowed to Use Cash Registers Voluntarily,” _Mail Economy,_ August 2, 1988.

> 14. Article 32, VAT Law, effective as of January 1, 1994.

> 15. Paragraph 2, Article 32, VAT Law, effective as of January 1, 1996.

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