* CONTENTS

1. Introduction 2. Income taxes around the world A. Income tax as a major source of revenue B. Countries that have introduced an income tax 3. Income tax in the Republic of Korea A. Overview of the history of income tax B. Current structure of income tax i. Personal income tax ii. Corporate income tax 4. Theory of income tax A. Personal income tax i. Defining income ii. Rate structure iii. Choice of unit iv. International income B. Corporate income tax i. Subject of taxation and rate structure ii. Taxation on multinational corporations iii. Incidence and excess burden iv. Pros and cons of corporate income tax C. Characteristics of income tax 5. Income tax scheme proposed by Vanuatu Revenue Review Committee A. Current revenue laws of Vanuatu B. Overview of proposed income tax scheme C. Estimation of the revenue impact D. Sensitive analysis of revenue raising options i. Comparing alternatives ii. Scenario analysis 6. Comprehensive review of the income tax scheme A. Well-designed taxation B. Comments on the income tax scheme C. Another consideration 7. Policy recommendation A. Taxation system aspect i. Step-wise introduction of income tax ii. Modeling tax compliance iii. Tax deductions and tax credits introduction B. Tax administration aspect i. Autonomous operation of tax authorities ii. Computerizing the tax collecting system iii. Legalizing the shadow economy 8. Conclusion Appendix 9. References

* SUMMARY

 Recently, the need for social welfare has been growing but the dependency on aid and grants does not seem to decline in the Republic of Vanuatu. Discussions on the introduction of new tax systems are actively being carried out in Vanuatu as different aspects like the graduation of UN LDC(Least Developed Country) in 2020, natural disasters, welfare spending increasing to improve the quality of life and changes in population structure have emerged. This paper provides expertise to the Republic of Vanuatu by sharing the Korean experience regarding tax administration.

 We divide recommendations into two parts; taxation system and tax administration. We suggest imposing income tax gradually in the order of (a) salary, wages, and business income and (b) capital gains. In the first phase, the revenue body constructs an overall tax-collecting system on a national scale and tests the system by collecting income tax from salary, wages, and business income. Then the revenue body exacts income tax by simply applying the same system to capital gains in the second phase. Another way to introduce income tax is by test-operating it in a limited area such as capital. Or phase-in the income tax could be another option. In addition, it is desirable to identify and constantly manage the factors that threaten tax cooperation. It is necessary to insert the required elements in the provision of the tax system or to reflect the events after the tax system. Therefore, continuous efforts should be made to monitor and analyze taxpayer behavior.

 In order to propose a policy recommendation for the tax administration, the first step is the independent operation of the taxation authority, which conducts professional tax administration in order to improve tax compliance. Secondly, to guarantee efficiency and fairness and to improve compliance with the income tax, revenue bodies should organize the tax collecting system first. In addition, since the computerization of the tax administration makes it easier to construct a database based on tax data, Vanuatu can expect to benefit from computerization as a result of tax information exchange agreements with other countries.

 Finally, efforts are needed to legalize the underground economy that all nations are targeting. Therefore, we introduced policy measures such as household checks, simple books, and financial real-name systems which were used in Korea, adding a brief explanation of the cash receipts and the income deduction system for credit card usage in Korea. In addition, we can think of ways to prevent transactions that can generate an underground economy by introducing suspicious transaction reporting systems and anti-money laundering laws which are in various countries in the world.

 This study is mainly focused on the Republic of Vanuatu, but most countries considering the introduction of an income tax might face similar challenges. We hope this study helps other countries when they initiate an income tax system.