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COPYRIGHT 2004 St. John's University, College of Business Administration
Abstract
The unprecedented development of the Internet and growth of electronic commerce have added more interdependency in the global economy. At the same time, some international conflicts for taxation, especially for sales tax, are created. This paper analyzes the taxation system of the Republic of Korea whose economy depends heavily on developed countries. Also, it evaluates Korea's Value Added Tax, which is equivalent to the U.S. sales tax with a view towards coping with the global electronic commerce market.
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Introduction
The explosive growth of electronic commerce is expected to continue along with the development of the Internet. Traditionally, all commercial transactions have been carried out by means of physical exchange. However, information technology and the unprecedented development of the Internet have made traditional trade possible through electronic networks. So it is obvious to see electronic commerce through the Internet mainly driven by private sectors will be expanded without limit in cyberspace. However, in cyberspace the system of taxation, an exclusive authority vested in governments, may remain in a gray zone where the highest probability of tax evasion is most likely to occur.
The unprecedented development of the Internet and growth of electronic commerce have added more interdependency in the global economy. Concurrently, some international conflicts for taxation have been created. Much of the past research on the subject of electronic commerce has been superficial. When problems were found with electronic commerce taxation, some analyses have been presented, but no appropriate taxation model has been suggested and developed. The motivation of this study is to analyze the taxation system of the Republic of Korea whose economy depends heavily on developed countries, especially on the Unites States, and to evaluate Korea's taxation system with a view towards coping with the global electronic commerce market.
Electronic Commerce and Value Added Tax in Korea
As presented in Exhibit 1, the number of Internet users has been increasing rapidly in recent years. The International Internet Society estimates that the global number of users will increase to 709 million by the year 2004 (from a mere 120 million in 2000). In Korea there were approximately 731,000 Internet users in 1996, but the number has already reached more than 25 million by June 2002. Electronic commerce using the Internet will rapidly increase in scale and will occupy more than 30% of consumption expenditure in private sectors within the next 30 years.
Taxation Structure of the Value Added Tax
Exhibit 2 depicts the current Korean Value Added Tax (VAT) payment system by self-assessment. The periods that tax is imposed in a calendar year are divided into two segments, the first...
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