The purpose of this study is to find some evidence for discretionary behavior in tax audits. Discretionary behavior in tax audits means that the intensity of tax audits is changed according to the condition of tax receipts. For this purpose, this study estimates the correlation between some variables that represent the intensity of tax audits and the progress ratio of tax receipts. In this study, the number of tax audits and the amount of additional tax receipts caused by tax audits are used for the variables that represent the intensity of tax audits.
This analysis shows that the progress ratio of tax receipts shows a significant correlation between the number of tax audits, the amount of additional tax receipts. That is, there is strong evidence for discretionary behavior in tax audits. This means that the intensity of tax collecting efforts has changed according to the conditions of tax receipts.
Several problems can be caused by the increase in discretionary behavior in tax administration. First of all, the way that actual tax burden is determined by administrative behaviors rather than tax law results in the violation of the “principle of no taxation without law.” Also, giving discriminative treatment to taxpayers according to the conditions of tax collection is contrary to the “principle of equality before the law.” Furthermore, discretionary behavior in tax administration can lead to the weakening of automatic stabilizers through letting down the sensitivity of the pro-cyclical movement in tax revenue.
In terms of reducing discretionary behaviors in tax audits, the following suggestions are made. First, transparency in tax law and tax administration should be enhanced. For this purpose, ambiguous clauses in tax law should be revised to specific and plain language so as to prevent discretionary interpretation of tax law by tax administration.
Second, the accuracy of estimation in tax revenue should be improved. This not only prevents the loss of tax revenue that is caused by underestimation of tax revenue, but also mitigates the abuse of tax payers’ rights that is caused by overestimation.
Third, a scientific and systematic approach to the tax audit system is required. For this purpose, a random sampling audit has to be introduced for the development of strategic audit planning.
Also, the tax audit procedure has to be regulated by the laws of the National Assembly rather than the internal regulations of the tax authority. Some important provisions in the Tax Audit Administration Regulation of the National Tax Service have to be provided in the Law for National Taxes.
Shim Hyejeong
This analysis shows that the progress ratio of tax receipts shows a significant correlation between the number of tax audits, the amount of additional tax receipts. That is, there is strong evidence for discretionary behavior in tax audits. This means that the intensity of tax collecting efforts has changed according to the conditions of tax receipts.
Several problems can be caused by the increase in discretionary behavior in tax administration. First of all, the way that actual tax burden is determined by administrative behaviors rather than tax law results in the violation of the “principle of no taxation without law.” Also, giving discriminative treatment to taxpayers according to the conditions of tax collection is contrary to the “principle of equality before the law.” Furthermore, discretionary behavior in tax administration can lead to the weakening of automatic stabilizers through letting down the sensitivity of the pro-cyclical movement in tax revenue.
In terms of reducing discretionary behaviors in tax audits, the following suggestions are made. First, transparency in tax law and tax administration should be enhanced. For this purpose, ambiguous clauses in tax law should be revised to specific and plain language so as to prevent discretionary interpretation of tax law by tax administration.
Second, the accuracy of estimation in tax revenue should be improved. This not only prevents the loss of tax revenue that is caused by underestimation of tax revenue, but also mitigates the abuse of tax payers’ rights that is caused by overestimation.
Third, a scientific and systematic approach to the tax audit system is required. For this purpose, a random sampling audit has to be introduced for the development of strategic audit planning.
Also, the tax audit procedure has to be regulated by the laws of the National Assembly rather than the internal regulations of the tax authority. Some important provisions in the Tax Audit Administration Regulation of the National Tax Service have to be provided in the Law for National Taxes.
Shim Hyejeong