Questions/Answers

The objective of the “Local tax mobile notification and easy payment service” is to provide a one-stop service for the public through mobile platforms. The service enables the legal effect of the electronic notification through mobile apps and allows the public to pay local taxes with the same mobile app. Local governments spent 54 million USD for 163 million paper tax notices in 2018, of which cost is rising every year, and it has become one of the unnecessary financial burden for local governments. In recent years, Korea has experienced a rapid change in family structure where one-person household is increasing and more people are participating in the workforce. This has caused frequent changes in people’s addresses, and the local tax notice sent via the postal service often fails to reach the recipient. As more than 94% of local tax notices are still sent by regular mail, this has caused the growth in civil complaints and disputes for not being able to confirm whether the designated recipient has received the local tax notice. It has become one of main reasons why people often distrust their local government and does not participate in how to better their local government. There has been people’s demand for the improvement in delivering method for local tax and fine notice, and the smartphone has become a solution as one of the most popular medium for such services. To meet such a demand from people, the Ministry of Interior and Safety (MOIS, hereafter) has initiated the mobile notification and payment service. It also provides the platform that can be used for the public to actively voice their opinions to better the public service from their local government.

The MOIS’s initiative exemplifies how the government can respond to the rapidly changing digital environment and promote the digital transformation for public convenience. Since the introduction of smartphone, there has been a paradigm shift to the mobile application which now dominates as the medium of communication. For instance, the rate of checking the local tax notice through email has sharply been reduced recently. The MOIS’s initiative enables people to check and pay the local tax due, which transforms how the tax is collected in digital society. It is also used to hear the public’s opinion on local governments.

Goal 8: Private service providers (kakaopay, NAVER, and PAYCO) have been actively engaged in recruiting new employees by increasing its full time positions. For example, kakaopay, only having 61 employees in 2017, had 363 employees in 2019. This has been possible because of cooperation with several public administrations. Goal 9: One of the main duties of the MOIS is to establish and implement plans for all taxpayers to inquire and pay local taxes under the Framework Act on Local Taxes as local governments often have the limited capability to build the specialized service by themselves. Regional differences in economic and financial soundness often lead to the discrimination in the public service for the residents. This initiative allows all citizens to receive public service equally, regardless of their residency. Goal 16: The initiative develops effective, accountable and transparent institutions at all levels. This service has been able to secure a large number of users and the reuse rate in a short period. It also has been effective in eliminating administrative distrust caused by disputes derived from formal tax noticing process. The online processing of all tax revenues is expected to restore and build strong credibility and trust in the administration of local governments.

Social: Local tax is used for sustaining the local communities. Citizens, satisfied with the provided public services, will feel sense of belonging to their local communities. Economic: Local governments will save 54 million USD that is used for the paper notice every year. Saved financial resources will be reallocated into other areas to improve the productivities of public administrations. Environmental: More than 163 million of papered tax notices have been issued every year. The MOIS’s initiative, by reducing the paper usage, is expected to save 16,000 30-year-old trees and 16 billion liters of water while reducing 487,290kg of carbon emissions.

The conventional method of delivering the local tax notice via the postal service has led to a significant shortfall by deteriorating the fiscal soundness of local governments. Moreover, while more than 94% of the notices are sent out by regular mail, whether actually delivered to the recipients could not be verified. Ensuring the receipt of notice is crucial as its legal effectiveness depends on whether it reaches the recipient. Much of civil complaints and disputes over local tax arise from not being able to concretely verify whether the mailed notice is actually delivered. Even if the notice has been delivered, the recipient often loses the notice and fails to pay by the due date. Such incidents have led to greater distrust in local tax administration and damaged the system of governance. After the amendment of the Frame Act on Local Taxes in December 2018 making the electronic notice legally effective, the MOIS was able to introduce the e-notice service via mobile applications. By collaborating with three major private mobile payment service providers, of which subscribers cover more than 94% of South Koreans, anyone who uses the service can easily receive/store the e-notice and pay the due.

Considering Koreans in their 50s and younger, 99.5% of male use smartphone while 99.25% of female do, showing the gender parity in smartphone users. Yet, 87.3% of female have experienced the mobile payment service while only 72.4% of male have. The reuse rate of mobile payment service is also higher among female: 90.0% of female vs. 75.3% of male. Such statistics suggest women to be more active users of mobile payment service in Korea. The MOIS’s initiative will increase the women’s participation in property management and handling local taxes while providing the opportunity to voice their opinions in local communities.

The initiative covers any local taxpayer regardless of social groups or categories he or she belongs to. However, it seeks to bring the benefit especially to the digitally vulnerable classes such as persons with disabilities and the elderly aged over 55-year-old. Though the smartphones are widespread to persons with disabilities and the elderly, the retention of smartphone does not guarantee the use of mobile payment services. Yet private service providers have developed various functions that target the digitally vulnerable classes, such as the voice interface function that allows the blind to register credit/debit cards and pay on the mobile payment services. Intuitive images are also provided for easier understanding on how to use the service. As the result, the proportion of the elderly over 60-year-old who uses the mobile payment services has more than doubled in 2018. The government also has developed the digital innovation plans to resolve the problem of digital polarization, such as the educational program of local community centers on how to use the smartphone for the elderly. The MOIS’s initiative is available to those who agree with the terms of service, while the conventional delivery service is still available.

Phase 1: In August 2017, local governments launched the mobile notification service through the mobile applications of financial institutions. The service has been provided so far without any systemic failure or personal information leakage. Yet, because of its lack of legal basis, the paper notice on the very same local tax item still had to be mailed. The service also has had the limited accessibility, being only available to those who have installed the specific mobile banking application. Phase 2: In December 2018, the Framework Act on Local Taxes was amended to give the legal basis for the e-notice, complementing the existing local tax notice format. Phase 3: The Minister of MOIS and CEOs of three major private mobile payment service providers, along with the chairman of National Council of Local Governments and the president of Korea Financial Telecommunication and Clearing Institute, signed the Memorandum of Understanding in June 2019. Phase 4: Collaborating with the Ministry of Culture, Sports and Tourism, the MOIS posted 110 electric billboards for the public awareness on the local tax notice and payment system, while web cartoons, infographics and video contents are also uploaded on various online platforms. Private service providers also promoted by showing the benefits of the mobile notice and payment service Phase 5: In July 2019, the initiative was finally launched with the property tax, while soon expanding to others such as registration/license tax, vehicle tax and resident tax. In October 2019, the notice service was further expanded by covering non-tax revenue items such as various administrative fines. So far, more than 1 million people have registered for the service, and a recent survey on users shows that they intend to use the service continuously with a high level of satisfaction of the service.

Institutional support was crucial to give the legal basis of e-notices. The amendment of the Framework Act of Local Taxes required a steady effort to provide the proper draft and the support from various stakeholders. For example, despite of the concern for how to handle sensitive personal information, the MOIS could finalize the amendment after an extensive discussion with the Ministry of Government Legislation. Another main issue was deciding and negotiating the fee for the e-notice service. The MOIS, after active persuasion and discussion with private service providers, was able to reach the agreement for no service charge.

This is a notable initiative incorporating Financial technology in the local taxation for practical convenience. kakaopay (86%) and NAVER (75%), which are the top-2 most popular apps that Koreans use every day, were selected as operators so that everyone can easily access them without installing additional apps. Payments can be made on the same mobile app, via mobile app payment method or online credit card payment or bank transfer. The one-stop service from notice to payment of tax is a innovative collaboration of public and private without any other financial investment.

The innovation is an original concept that was invented by the MOIS initially to improve civil public service for the people. In August 2017, the MOIS started mobile notice and payment service by mobile banking apps what the taxpayers used to. This service has been successfully implemented so far without any failures in sending and personal information leakage. However, it was available only after installing additional mobile banking apps, and it was not widely used because of the inconvenience. The initiative is a considerable effort that public service should bear directly upon real life.

Initially, Gyeonggi-do and Busan city launched the notification and payment system using kakaopay app as a pilot project in 2018 and 2016, respectively. However, the system had several deficiencies. kakaopay saved taxes for a while in their system after payments were made by the residents, and then transferred to Gyeonggi-do and Busan each 25 days and 13 days later. During this period, kakaopay, a private company, kept the local tax of at least several billion KRW and this was a violation of the Local Accounting Act. This issue was solved with a provision that makes the immediate transfer to the same-day settlement under MOU between the MOIS and three private service providers. Gyeonggi-do and Busan city entered into contracts each having different terms and conditions including the service fee amount for the same system depending on their negotiating powers. By reaching the MOU with no cost of the service fee under the coordination of the MOIS between public and private interests of stakeholders, Gyeonggi-do and Busan city terminated existing contracts with kakaopay. Later, Gyeonggi-do and Busan city joined the initiative. In consequence, the MOIS improved the system to implement non-discriminatory services to all local governments.

Taxes are largely divided into national taxes and local taxes. Paying local taxes is one of the citizens’ duties. The initiative only applies for local taxes so far. However, it is under process to expand to the national tax system with the National Tax Service. The initiative has a great possibility of other notices and payments of administration. For example, the National Police Agency imposes traffic penalties and the National Pension Service can notify the pension. People may check their amount with details easily and make a payment without delay. Any country where mobile payment system is effectively implemented, with high technology in cyber security, may adopt this system. The California Code, Revenue and Taxation Code section 2610.5 stipulates that the tax collector shall mail or electronically transmit a county tax bill, but California does not use mobile notices.In China, the payment for government utilities via WeChat or Alipay is already well known. However, it can only be used for payment and does not apply to the notices. Those countries may consider mobile notice by mobile payment apps to enforce the same legal effect as paper notices.

Government: Internally within the MOIS, there was a responsible team (System Development Division) which utilized existing human resources without additional recruitment and budget. The initiative did not need much budget as it was more focused on consensus between the different interests of stakeholders. Private Service Providers: kakaopay, NAVER, and PAYCO had to hire new employees to build up infrastructure and develop the tax notice system. The system stability, cybersecurity and keeping personal information are concerning issues. Intellectual resources were also used to scale up the technology to the level of financial institutions.

Private service providers are unable to charge local governments and taxpayers for the fees, so the project will continue as cost-free for the governments. Even so, operating the tax notice and payment system is a good investment for them. The service will attract a lot of new users coming into their services. People will think the providers are reliable because of their contribution in building convenient public infrastructure. The MOIS will amend relevant regulations and renew the MOU so that local governments and taxpayers can continue to use this system with stability and predictability.

Yes

The initiative was evaluated externally by public and experts. Every year, the MOIS awards the best practice of public service and any administrative government may participate. Public citizens voted for 40 case studies, preliminarily reviewed, on the national participation website, “Gwanghwamun 1st Avenue” for 2 weeks from September 4, 2019. After that, only 20 cases were selected by an expert group consisting of members from scholars, research institutions, and press through presentation and interview. Finally, the public presentation was held in front of public citizens and the expert group again, and the final rank was determined.

The following indicators and tools are used to select a best practice that improves the process of civil service, activates the system, provides customized services, or solves unusual complaints. The documentary review has five criteria such as creativity 30%, practicality 25%, efficiency 20%, cooperation 15%, and adaptability to other contexts 10%. The public presentation has a different standard; the contents of the case study 40% which are the abovementioned five criteria, quality of presentation 40% in which the presenter delivers the contents specifically on time, and the response of the audience 20% on how the contents generate attention and interest.

Main Outcomes: The initiative was awarded the Presidential Award for Best Practice at the Improvement of Public Service Award in 2019. It is worth to note that votes were made by 5,784 public citizens to evaluate 40 cases. This initiative received the highest additional points from the public online evaluation with a total of 911 votes. More than 1 million people applied to use the mobile notice and payment system only four months after its public promotion. Sustainability: Based on the overwhelmingly positive response from the public, the Ministry of Science and ICT will consider the permanent regulatory reform beyond temporary approval of personal data transferring in the regulatory sandbox. It would make the initiative sustainable with institutional stability. Impacts: The system will be applied to non-local tax revenues which is another source of self-reliant finance of local government. If so, the participation of the related administrative ministries (Ministry of Land, Justice, Environment, Local Governments, etc.) will be expanded. It will also be able to pay local taxes by means of electronic prepayment, saving resources by reducing the production of coins and bills, and contributing to the development of the fin-tech industry and the realization of the paperless society.

Legislative Branch: First of all, the “Framework Act on Local Taxes” had to revise to add a method of notice for mobile apps and it required active cooperation from the legislature. A revision of other tax-related laws will also be required to improve the further initiative. Internal Executive branch: The Ministry of Science and ICT strives to solve issues that the regulations can stymie the delivery of new IT services and positively reviewed the regulatory sandbox as a service. As a private service provider, kakaopay had approved mobile notice service in January 2019, and regulation issue was solved regarding self-authentication. To acknowledge the mobile notice and payment service, 110 electronic billboards nationwide were promoted so that more people could learn about the initiative and apply for it. The Ministry of Culture, Sports and Tourism exercise played a key role in the public relations under their budget. Local Governments: It requires close cooperation between central and local governments vertically. The MOIS should collect tax information which is received from local governments and send the data to Korea Financial Telecommunications & Clearings Institute (KFTC). The MOIS also supports a local government's negotiation for a service agreement that has limited bargaining power.

This project is of the great significance of the public-private partnership including citizens' participation from designing, implementation to evaluation. The MOIS was spearheading the work on designing the mobile notice and payment system, taking the lead process to coordinate diverse interests as a central government. To apply the initiative national-wide as a whole, local governments had to consent the initiative beforehand. The role of local governments is generating tax information of residents and sending those data to the KFTC. KFTC receives the tax notice data from each local government and transfers the tax notices to each Internet taxation system, mobile banking app, or Fin-tech service providers depending on the platforms that residents wanted to receive and apply. kakaopay, NAVER, and PAYCO are the three most heavily used mobile apps who provide mobile instant messenger app, portals, and shopping. They also service Electronic Billing Presentment and Payment (EBPP) and this is the reason to be selected as operators. They invested their own IT infrastructure and developed programs to implement public service for people's convenience. General public citizens evaluated the initiative at the award with the best practice of civil service improvement in 2019.

Lessons Learned: It was possible to quickly launch the initiative because private service providers actively joined this public administration service for people, regardless of the interests of companies. The case will set an example for other public-private partnership models in the future. The citizens provided full support through the majority of votes from the best practice award, which showed that they wanted services that closely connected to real life. Improvement Plans: The Local Tax Collection Act will be amended within 2020 to double the minimum amount of tax credits to reward the saved mailing budget to the users for mobile notification and easy payment. The MOIS is preparing the “Next-Generation Local Tax Payment System”, with the aim to launch in February 2022. It will be an upgraded version of the initiative and people will have notices and make payments with the Internet of Things (IoT) devices such as Internet TVs and refrigerators. Tax consulting could be available through AI platforms. The initiative is being implemented to promote the use of electronic documents for the realization of a paperless society. This will be extended to electronic prescription and electronic receipts, which will contribute to a reduction in logging and micro-dust absorption.