South Korea’s National Tax Service (NTS) is facing a storm of criticism and urgent calls for reform after a sweeping audit uncovered systemic failures across its core tax administration functions, resulting in hundreds of billions of won in lost tax revenue. The Board of Audit and Inspection (BAI) released its findings on April 27, 2026, following a comprehensive audit of the NTS headquarters conducted between May and June 2025. The audit, which targeted everything from tax audit selection to the management of debts and the handling of illegal medical institutions, paints a picture of an agency struggling to keep pace with its responsibilities amid a declining tax base.
The numbers are eye-popping. According to the BAI, the NTS failed to collect an estimated 61.3 billion KRW (about $45 million USD) in value-added tax (VAT) from illegal proxy hospitals and other medical institutions operating outside the law. The problem, as detailed by Newsis and other outlets, stems from the NTS’s inability to properly utilize data received annually from the National Health Insurance Service. Since 2020, the NTS has been handed lists of institutions violating the Medical Service Act and Pharmacy Act—so-called ‘proxy hospitals’—which are not entitled to VAT exemptions, unlike legitimate medical practices. Yet, despite receiving this data, the NTS routinely failed to confirm guilty verdicts or forward the necessary information to its regional offices, resulting in lost tax opportunities.
“The NTS neglected 105 institutions with confirmed guilty verdicts, resulting in 26.7 billion KRW of VAT not collected due to expiration of the 7-year taxation period,” the BAI noted in its report. The audit also found that 64 institutions with confirmed guilty verdicts still have active taxation periods, but due to a lack of data generation and dissemination, an estimated 31 billion KRW in VAT may slip through the cracks. Worse still, in 24 cases, the taxation period expired before a guilty verdict was reached, leading to a further 3.6 billion KRW lost forever.
The BAI’s findings did not stop at medical institutions. The audit revealed that the NTS’s post-debt management was also deeply flawed. As of March 2015, the NTS was supposed to be monitoring over 1.11 million cases of private debts, tracking whether interest payments were made and whether creditors and debtors fulfilled their tax obligations. In practice, only about 1% of these cases were reviewed annually. This lackadaisical approach led to 7.2 billion KRW in missed taxes—comprising 2.45 billion KRW in income tax, 5.24 billion KRW in gift tax, and 1.73 billion KRW in inheritance tax.
“NTS failed to verify creditors’ interest income reports and debtors’ gift tax declarations, causing 5.5 billion KRW in income and gift taxes to be missed,” the BAI stated. Even after the NTS revised its system in July 2021 to better account for the death of creditors in inheritance calculations, it failed to conduct a full review of previous cases, resulting in a further 1.7 billion KRW in inheritance tax omissions.
The audit also highlighted significant missteps in the process used to select targets for regular tax audits. Errors in the calculation of sincerity evaluation scores, as well as violations of internal guidelines, meant that some corporations and individual businesses were unjustly targeted—or, in some cases, overlooked. The BAI found that irrelevant or weakly related criteria were being used in the selection process, raising concerns about fairness and transparency.
These revelations come at a difficult time for the NTS. South Korea’s tax revenue has been on a downward slide, falling from 384.2 trillion KRW in 2022 to 335.7 trillion KRW in 2023, and again to 328.4 trillion KRW in 2024. The audit was conducted, in part, to assess the effectiveness of the NTS’s tax collection and management amid this persistent decline.
In addition to the lapses in medical VAT and debt management, the audit uncovered problems with how the NTS handled real estate transactions among related parties. In 22 cases, property transfers between spouses or close family members were treated as sales rather than presumed gifts, despite a lack of clear compensation. The BAI criticized the NTS for failing to apply gift presumption rules and called for a thorough review of these and similar cases.
The BAI’s response was swift and pointed. The agency issued a total of 23 corrective actions, including 11 warnings and 12 notifications for personnel records. The NTS commissioner was ordered to overhaul the criteria for selecting audit targets, improve the post-debt management system, strengthen the verification of related-party transactions, and establish a more robust framework for utilizing tax data from medical law violators. The BAI also demanded that the NTS consider re-taxing those who had unjustly benefited from VAT exemptions due to its own administrative failures.
“The Board of Audit demanded comprehensive improvements including rationalizing audit selection criteria, enhancing debt management, strengthening gift presumption verification, and improving medical tax data utilization,” Newsis reported. The BAI warned that repeated management lapses in these core areas could undermine public trust in the NTS and further erode the government’s ability to secure tax revenue.
For its part, the NTS has acknowledged the need for change. While officials have yet to announce a detailed reform plan, they have indicated that they will review the BAI’s recommendations and take steps to address the identified shortcomings. The stakes are high: with tax revenues shrinking and public scrutiny intensifying, the NTS cannot afford further missteps.
Experts say the findings reflect broader challenges facing tax authorities worldwide. As financial transactions grow more complex and data flows multiply, tax agencies must invest in better systems, more rigorous oversight, and stronger internal controls. Otherwise, the risk of lost revenue—and lost public confidence—will only grow.
In the end, the BAI’s audit serves as a wake-up call not just for the NTS, but for anyone concerned about the integrity and effectiveness of government institutions. The message is clear: accountability, transparency, and proactive management are not optional—they are essential for sustaining the trust and resources that underpin a functioning society.