The determinants of taxpayer’s satisfaction of reverse charge system and bank service: Case of Korean value-added tax

Since 2008, Korea has been applying a reverse charge system (RCS) for the value-added tax (VAT) on the transactions of gold, copper, and copper scrap. Hence, this study analyzed the effects of transaction fee, adoption costs, and advice related to RCS on the satisfaction of taxpayers with the RSC and with banks that operate such a system. The investigation involved 1813 taxpayers (proprietorships or corporates) subject to the RCS of VAT, and it adopted two approaches, namely, the ordered probit and ordinary least square regressions. Results revealed two relevant conclusions. First, transaction fees and advice related to RCS incur statistically significant negative and positive effects, respectively, on the satisfaction of taxpayers with banks that implement RCS. This finding reflects the negative satisfaction of taxpayers with the system or bank because of the charged fees, which would otherwise not have been charged if the system did not exist. Second, although RCS adoption cost exerts a statistically significant negative effect on the satisfaction of taxpayers with RCS, it does not significantly influence their satisfaction with the services of the bank. This observation indicates that the RCS adoption cost incurs a negative effect in terms of policy, but it does not negatively affect the satisfaction rates of taxpayers with banks that implement the system. This study presented helpful insights regarding the response of taxpayers toward the adoption of RCS, which does not follow the principles of VAT, and therefore contributes to improving the overall system.