By Park Hyong-ki
The country’s economic interest group called on the new administration to make efforts to curb underground economic activity through deregulation and tax cuts.
The Korean Chamber of Commerce and Industry (KCCI) has estimated that the underground economy accounts for around 30% of GDP, with the market size reaching nearly 250 trillion won.
He said it was imperative for the government to reduce the size of the black market to that of developed countries, as underground economic activities negatively affect growth and fiscal policies.
The underground economy, or black market, refers to businesses that are conducted illegally off the government’s radar to evade taxes through untraceable settlement methods such as money laundering or cash transactions.
The chamber said Korea’s underground economy is one of the worst economies in the OECD, ranking 43rd out of 145. The underground economy in the United States accounts for about 8.4% of its GDP; 10.8% for Japan; 13.1% for Singapore; 15.6% for China; and 16.6 percent for Hong Kong.
He noted that black market activity sets off a vicious cycle as it forces the government to raise taxes to cover losses and degrade the value of private and public products.
The chamber said the increase in black market activity is linked to a decrease in per capita income, while increasing income inequality or the distribution of wealth.
To this end, the KCCI advised the new government to further reduce taxes and spending as well as deregulate laws and regulations affecting businesses.
“Stricter corporate and tax rules are bound to increase underground activity,” he said.
For example, the United States reported that when the federal income tax is increased by 1 percentage point, it also boosts the black market by 1.4 percentage points.
The KCCI also said the new government should focus on increasing transparency and efficiency, as such efforts are likely to reduce black market production.
He stressed that it is imperative to reduce the underground economy by at least half to around 15%, if the country seeks to become a developed economy.