Gangnam-gu has launched a crackdown on 1,365 business owners who withheld local income tax from employee paychecks but failed to remit the funds to the district without justification, issuing pre-referral notices ahead of potential criminal charges.
Under South Korea's local tax system, employers must withhold local income tax from wages and remit it to the relevant local government by Sept. 10 each year — a mechanism known as "special withholding" of local income tax. Some business owners, however, have been deducting the tax from employees' salaries each month while failing to forward the funds to authorities.
Gangnam-gu's Tax Collection Team 38 conducted a full investigation of 2,151 taxpayers who had accumulated arrears of 1 million won or more in special withholding obligations assessed since July 2019, covering 22,221 cases with a combined outstanding balance of 10.8 billion won ($7.81 million).
Officials cross-referenced National Tax Service data with credit information, business registration records and delinquency histories, and used two AI-powered programs developed in-house: "Chaenam-eum," a delinquency search and inquiry tool, and a separate data extraction and screening program. By examining whether businesses remained in operation, the duration and frequency of non-payment, payment history and whether notices had been delivered, the district identified 1,365 individuals who had either defaulted repeatedly over extended periods or had made no effort to pay or explain their arrears. Their combined delinquency spans 16,855 cases totaling about 6.4 billion won.
The investigation found businesses that have continued operating for years while accumulating unpaid special withholding obligations. One lending company, identified as Corporation A, has failed to remit 15 installments totaling about 55.93 million won since March 2021. Corporation B has similarly remained in business while leaving 60 payments worth about 10.49 million won unpaid since August 2021. The district said it will closely examine the circumstances and intent behind such long-term and repeat defaults.
Pre-referral notices were generated using "G-Form," another in-house program built by district civil servants using generative AI. The tool links spreadsheet data to document templates to produce individualized notices in bulk, addressing shortcomings previously encountered with hangul mail-merge functions and optimizing the process for high-volume document generation. The district plans to expand the program to other repetitive mass-document tasks.
The district began sending pre-referral notices in August and will accept explanations from recipients through Sept. 30. Each case will be reviewed individually — taking into account the circumstances of non-payment, evidence of intent, payment status and the statute of limitations — before a final decision on criminal referral is made. Business owners facing temporary cash-flow difficulties will be advised on options such as installment payment plans.
Under the Local Tax Basic Act, a special withholding agent who fails to remit collected taxes without justification may face up to two years in prison or a fine of up to 20 million won. Separately from any criminal referral, the district will also pursue seizure and public auction of assets in accordance with legal requirements.
"Failing to remit special withholding taxes dampens the morale of hardworking employees and seriously undermines tax fairness for the vast majority of business owners who pay their taxes diligently even under difficult circumstances," Gangnam-gu District Mayor Kim Hyeon-gi said. "We will provide ample opportunity for explanation and conduct thorough preliminary reviews, but for those who deliberately refuse to pay without justification — exploiting that process — we will respond firmly using every means the law allows."
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