The Korea Local Administration Review

With reference to relevant theories and overseas cases, this study addressed current operations and issues of local consumption tax based on origin principle, tax credit clearance system and deferred payment system, which are means of assuring local government's tax rate decision right in regard to various types of local consumption tax. In addition, on the basis of examinations into theories and cases related to local consumption tax, this study used a research model to explore possible introduction of local consumption tax system in Korea with tax rate decision right empowered to local governments.
According to examinations herein, it is possible that local consumption tax system involving tax rate decision right is introduced into Korea. However, it is now reasonable to consider local consumption tax based on deferred payment system as alternative for that based on joint VAT; Like local consumption tax based on joint VAT, it is advantageous that local consumption tax based on deferred payment system is characterized by tax rate decision right empowered to local government with taxpayer's residence corresponding jurisdiction of tax revenue, except for extra expenses in discriminating transactions across local government bodies. Furthermore, unlike local consumption tax based on origin principle or tax credit clearance system, the local consumption tax based on deferred payment system is less likely to erode tax revenue of other local government bodies or enter into tax rate competitions to obtain profitable cash flow, and is also less likely to cause carousel fraud which actually prevail in the European Union.