The National Tax Service said it would trace where the money from the underground economy has flowed, as much of it is used in illegal businesses or to bequeath wealth.

The NTS sees all undeclared or untaxed income as part of the underground or “shadow” economy.

“Looking back at past tax inquiries, illegal loan sharks, self-employed people with high incomes and entrepreneurs hide a part of their incomes to invest in other businesses, use it in slush funds or siphon it overseas to hand down to their children,” an NTS official said on Sunday.

Whereas the NTS probes had so far focused on spotting the unreported incomes to impose taxes, now they are taking a step further to find out where and how the money was used.

The tax agency early this month launched planned tax inquiries into 224 people including 51 superrich individuals, 48 suspects of offshore tax evasion, 117 illegal or profiteering loan sharks and eight online communities.

The NTS is set to scrutinize these people to the extent of uncovering where their undeclared incomes were spent.

If the money is found to have been used for stock price manipulation, illegal gambling or in other realms of the shadow economy, the NTS will begin simultaneous inquiries into related companies, associates or relatives.

Once the probes are over, the NTS plans to zero in on cash trades such as adult entertainment businesses, including room salons, and property leasing services prior to tax inquiries and on-site inspections.

If tax evasion through cash transactions and reporting of false expenses is found, the NTS is ready to go after it.

Such probes are expected to gain momentum once legal changes sought by the NTS to uncover the underground economy are put in place

The tax agency is in discussions with the Finance Ministry to raise fines for dishonest taxpayer behavior, such as concealment of ledgers, forgery and false statements to up to 300 million won ($266,000), up from the current 5 million won.

The NTS is also close to reaching an agreement with the Financial Services Commission on revising the law on the Financial Intelligence Unit to allow the tax agency more access to the FIU’s cash transaction information.

The agency is also pushing to revise the law so that financial watchdogs such as the Financial Supervisory Service and the Korea Deposit Insurance Corporation inform the NTS of suspected tax evasion.

“We have strengthened on-site information collection by increasing the tax inquiry staff. Once the revision of related rules is completed, we will be capable of more intense investigations and will see much progress in unraveling the shadow economy,” an NTS official said.

By Kim So-hyun (sophie@heraldcorp.com)