K-Pop Stars Promote South Korean Tax Compliance

In the week of May 16, the hit South Korean song “Eight” was at the top of the Billboard World Digital Song Sales chart and was the No. 1 download on Apple Music in 59 countries, including the United States. For 27-year-old singer-songwriter-actress IU (born Lee Ji-eun), it was the shiniest on a long list of shining accomplishments, including two dozen No. 1 singles in her country. And on June 24 IU and television star Lee Seo-jin became honorary ambassadors for South Korea’s National Tax Service (NTS).

Taxpayers’ Day in Korea is March 3, when an award ceremony is held during which individuals and corporations receive presidential commendation for being “model taxpayers.” (This year, because of the pandemic, awards were granted, but without the ceremony.) As explained on the NTS website: “Toward a tax culture where honest taxpayers are respected and taxes are willingly paid, the NTS has introduced the Exemplary Taxpayer System.”

Each year, two celebrities from the group of model taxpayers are chosen to be honorary goodwill ambassadors. This year it was IU and Lee Seo-jin’s turn to be the faces of the NTS. “Not only do IU and Lee Seo-jin diligently pay their taxes, but they also actively participate in philanthropic contributions to society. We appointed them honorary ambassadors because they are fitting for the National Tax Service, which does its best to ensure honest tax payment,” the NTS commented. Celebrity tax ambassadors for the NTS model for posters, appear in infomercials, and even help prepare tax returns. In return, they are free from tax audits for three years, and they can go to the front of the line at immigration checkpoints in airports.

South Korea’s taxes are relatively low. In 2018 it had a tax-to-GDP ratio of 28.4 percent, compared with the OECD average of 34.3 percent, and was ranked 31st out of the 36 OECD countries. Joon-Kyung Kim and K.S. Kim convincingly argue that “the capacity to raise tax revenues as a result of the efforts to improve tax administration and to stamp out corruption in government in the 1960s was central to Korea’s economic development.” The NTS was founded in 1966 as part of a sweeping overhaul of what was then a dysfunctional system of tax administration. This year’s Taxpayers’ Day was the 54th for the NTS. Information about the current and recent Korean tax ambassadors is presented in the table.

Korean Wave

Until the mid-1970s, North and South Korea had comparable per capita income. Since then, while the North has stagnated, South Korea has been an economic dynamo. With a population larger than those of Texas and Florida combined, this country the size of Indiana now boasts the world’s 12th largest economy. It is renowned for its exports of electronics, steel, vehicles, ships, and — more recently — pop culture.

“Hallyu” refers to the wave of Korean popular culture that has swept airwaves and the internet in the last two decades. The Korean government lavishly subsidizes its entertainment industry. According to Euny Hong, author of The Birth of Korean Cool: How One Nation Is Conquering the World Through Pop Culture (2014), the government decided on an export entertainment strategy when it realized that it could make as much money in one year from a movie like Jurassic Park as Hyundai could make selling 1.5 million cars. Hallyu has contributed not only to the Korean economy, but also to the enhancement of South Korea’s national image.

At the crest of the Korean wave is K-pop: the dazzling constellation of teen and 20-something sugar-sweet singer-dancers filling the media airwaves worldwide. IU’s hit “Eight” features Korean idol Suga, also 27 years old. Suga is a member of the fabulously popular K-pop boy band BTS. The BTS phenomenon is comparable only to Beatlemania. Hysterical fans. Three No. 1 albums on the Billboard 200 chart in a single year. Last year, the mop-topped septet sold 4 million copies of an EP in six months. The 2018-2019 BTS Love Yourself World Tour was attended by 2 million fans in 14 countries. Hundreds of thousands of $400 tickets for the U.S. leg of that tour sold out in minutes. Overall, BTS generates nearly $5 billion for the Korean economy.

Unfortunately, K-pop is not all fame and fortune. Beyond all the glitz and glamor of synchronized dancing, frilly fashion, and fast-paced rhythms, there is a dark side. K-pop is an industry with practices that make the old Hollywood studio system seem like a Sunday picnic. Secretive training camps. Grueling rehearsal schedules. Mandated plastic surgery. Exploitative long-term contracts. All for teen wannabes. Only a few make it to the big time. And even then the money is small, and the pressure is unrelenting.

Tax Morale

The OECD has put a spotlight on the critical role of taxpayer morale in developing countries. The organization defines tax morale as what motivates people to participate in, and comply with, the tax system. But as the OECD points out in Tax Morale: What Drives People and Businesses to Pay Tax? (2019), tax morale is important in developed economies as well, including the United States’, with its “voluntary” income tax system: “Understanding and improving tax morale has been relatively neglected. . . . Improving tax morale therefore holds the potential to increase revenues with (relatively) little enforcement effort.” In the United States, the income tax became a mass tax during World War II. And it seems the fear of the IRS instilled in the taxpaying public by a massive wartime ad campaign has never worn off. Whether it is rooted in fear or in patriotism, taxpayer morale is a critical component of tax administration.

Private businesses have goodwill. The corresponding intangible asset for tax collection agencies is tax morale. The Korean government annually rejuvenates taxpayer morale by enlisting the support of its nation’s superstars. Too bad that in the United States our leaders not only continuously drain the IRS of financial resources, but also routinely dissipate taxpayer morale with cheap shots at the easiest of easy government targets. It is unlikely that we are going to see Treasury Secretary Steven Mnuchin asking Ariana Grande to make a video for the IRS, but perhaps we can at least recognize that there is value to promoting the agency’s public image.