A Study of Taxation Challenges and Policy Reforms for Gig Workers in the Digital Platform Economy

This study analyzes the tax issues of gig workers arising from the growth of the gig economy, which is based on short-term labor transactions within the expanding sharing economy, driven by advances in Information and Communication Technology (ICT). It also seeks to propose effective tax system improvements. Gig workers are a new type of economic agent providing labor through digital platforms, distinguished by characteristics that differ from traditional employment. Currently, gig workers' income is predominantly classified as business income or other income, making withholding difficult. This creates tax equity issues compared to traditional employees. The lack of tax knowledge among gig workers and their irregular income structures lead to unreported or underreported income, which significantly contributes to the widening Tax Gap. To address these challenges, this study proposes the following policy recommendations: First, it suggests enhancing tax burden equity between income types by adjusting employee income deductions and expanding basic deductions. It also proposes introducing special measures that allow gig workers, up to a certain income level, to claim presumptive expense deductions similar to those for employees, along with establishing a clear legal definition for gig workers. Second, to ensure tax transparency and reduce the Tax Gap, it advocates for strengthening information reporting systems by obliging platform operators to report gig worker income data and integrating this with tax filing platforms like Hometax for simplified reporting. Third, based on OECD recommendations, it proposes the implementation of a withholding tax system for platform operators or intermediary financial institutions, aiming to simplify taxpayer filing procedures and secure tax revenues simultaneously. Finally, to enhance taxpayer convenience and administrative efficiency, the study suggests expanding the Korean-style Pre-filled Tax Return system. It emphasizes the importance of encouraging platform operators to voluntarily provide gig worker income information to individuals' Hometax or MyData accounts. In conclusion, the proliferation of the gig economy exposes the limitations of the existing income tax system. Therefore, it is urgent to introduce innovative tax policies that consider the unique income characteristics and actual labor forms of gig workers to enhance tax equity and ensure stable tax revenue.