{"content_id":"r6dxzpakme","slug":"used-phone-market-vat-issue-korea","locale":"en","schema_type":"Report","category":"report","category_name":"Report","title":"The Growth of the Used Cell Phone Market and Issues Surrounding Value-Added Tax (VAT)","summary":"The domestic used-phone market is growing rapidly due to the high cost of smartphones, demand for upgrades, the rise of online platforms, and the expansion of manufacturer trade-in programs. A key tax issue is that businesses cannot obtain tax invoices when purchasing used phones from individuals, making it difficult to claim input tax credits.","author":{"name":"Injoys Editorial Team","url":"https://injoys.com/ko/about"},"key_points":["The growth of the used phone market is not merely a trend toward thrifty consumption, but a structural shift driven by the convergence of high-end devices, platform-based transactions, trade-ins, and resource reuse.","Under the current value-added tax (VAT) system, when a business purchases a used cell phone from an individual, it is difficult to claim a tax credit because no tax invoice is provided, and the business is required to pay VAT on the sales revenue when reselling the phone.","The EU and the UK operate a margin tax system that taxes the difference between the purchase price and the sale price for secondhand goods.","Since South Korea also has special provisions similar to input tax credits in the used car and recycled waste sectors, the possibility of applying them to the used cell phone market could be discussed.","Reforms to the tax system for used cell phones should be designed not only to ease the tax burden but also to facilitate transaction tracking, prevent theft, ensure the deletion of personal information, and standardize quality ratings."],"content_markdown":"## At a Glance\n\nThe used smartphone market is growing as a result of a combination of factors: rising prices for new smartphones, shorter replacement cycles, the emergence of platform-based buyback and resale operators, and the expansion of manufacturer trade-in programs. Industry estimates suggest that the volume of used phone transactions in South Korea has recently expanded from the previous annual range of 6 to 7 million units to between 9 and 10 million units. Although the market does not yet have a fully established official statistical system, even if we assume an average transaction price of just 200,000 won per used phone, the annual transaction volume can be estimated at nearly 2 trillion won.\n\nHowever, as the market grows, the issue of value-added tax (VAT) becomes increasingly important. The primary sellers of used phones are mostly individual consumers. Since individuals are generally unable to issue tax invoices, businesses that purchase these phones from them find it difficult to claim input tax credits. Conversely, when businesses resell the phones to consumers, they are required to pay value-added tax on the sales price. Critics point out that this structure drives up distribution costs for used phones and can also affect the final consumer price.\n\n## Reasons for the Rapid Growth of the Used Phone Market\n\n### 1. Rising Prices of New Smartphones\n\nThe prices of the latest flagship smartphones have continued to rise. Rather than buying new devices, consumers are opting for models from one or two generations ago, refurbished devices, or used phones in good condition to reduce costs. The financial burden of device prices—known as “phoneflation”—is a key factor driving demand for used phones.\n\n### 2. Smartphone Replacement Cycles and Residual Value\n\nThe need to replace smartphones arises based on factors such as battery life, camera quality, storage capacity, and operating system support. However, high-end models retain significant residual value even after 2–3 years of use. As a result, existing users can sell their old devices to lower the cost of purchasing a new one, while buyers can acquire high-performance devices at relatively low prices.\n\n### 3. The Emergence of Platform Operators\n\nIn the past, used smartphone transactions were primarily conducted through direct peer-to-peer sales or small retail stores. Recently, however, there has been a rise in platforms that offer inspection, grading, data erasure, warranties, shipping services, and instant buyback options. This shift toward platform-based services has increased trust in transactions and made used smartphones more accessible to the general public.\n\n### 4. Manufacturer and Carrier Reward Programs\n\nManufacturers such as Samsung Electronics and mobile carriers operate used phone buyback, trade-in, and return programs to reduce customer churn and encourage the purchase of new products. These programs effectively bring used devices back into the distribution channel, thereby increasing the supply of used phones.\n\n### 5. Reuse and the Circular Economy Trend\n\nUsed phones are products that can reduce electronic waste and promote resource reuse. Smartphones contain high-value components such as metals, batteries, semiconductors, and displays. Re-circulating usable devices rather than disposing of them can lower environmental costs.\n\n## The Structure of the Used Phone Trade and Where Tax Issues Arise\n\nThe used phone trade typically follows this process:\n\n1. Individual consumers sell their used smartphones to a platform or a buyer.\n2. The buyer checks the device’s condition, appearance, battery performance, whether it is locked, and whether it has been reported stolen or lost.\n3. The business repairs, resets, grades, packages, and provides a warranty before reselling the device to another consumer.\n4. The business reports value-added tax (VAT) on the resale revenue.\n\nThe problem arises in Step 1. Since individual consumers are generally not businesses, it is difficult for them to issue tax documentation—such as tax invoices or cash receipts—that serves as the basis for input tax credits. Consequently, even if a business actually incurs expenses when purchasing a used phone from an individual, it is difficult to claim the input tax credit under the Value-Added Tax Act.\n\n## Why Does VAT Seem Like a Double Burden?\n\nIn principle, VAT is a tax levied on the value newly added at each stage of a transaction. Businesses subtract input tax from output tax and pay the difference. However, since it is difficult to deduct input tax on used phones purchased from individuals, the tax burden on the business may increase when it resells them.\n\n### Simple Example\n\nThe example below is a simplified calculation provided for illustrative purposes. Actual tax amounts may vary depending on the supply price, whether VAT is included, the business operator’s expenses, applicable special provisions, and the method of filing.\n\n| Category | Amount or Calculation | Description |\n|---|---:|---|\n| Purchase of a used phone from an individual | 1.1 million won | Individuals do not issue tax invoices |\n| Resale to a consumer | 1.65 million won | Assumed to be a price inclusive of VAT |\n| Output Tax Under General Taxation | 150,000 won | 1,650,000 won × 10/110 |\n| Deductible Input Tax | 0 won | Difficult to deduct without a tax invoice |\n| Tax payable | 150,000 won | Bear the full amount of output tax |\n| Under the tax-on-the-difference method | Approximately 50,000 won | 550,000 won × 10/110, for simple comparison |\n\nIn this example, the business owner’s actual economic profit is 550,000 won. However, if the business cannot claim a deduction for purchases without tax invoices, it ends up bearing the VAT included in the entire resale price. Consumers have already paid a price that includes VAT when purchasing a new cell phone, and this tax burden may be reflected in the price again during the used goods distribution stage.\n\n## Overseas Systems: Margin Taxation and Deemed Input Tax Credit\n\nThe trade in used goods is characterized by the fact that individuals act as suppliers. Reflecting this characteristic, many countries have systems that differ from the standard tax invoice-based deduction method.\n\n### EU and the UK: Margin Taxation\n\nThe EU and the UK operate margin taxation systems for certain items, such as used goods, works of art, and antiques. The key feature of this system is that VAT is calculated not on the total sales price, but only on the difference between the purchase price and the sales price—that is, the margin.\n\n| Item | Standard Taxation | Margin Taxation |\n|---|---|---|\n| Tax Base | Sales price or supply value | Difference between sales price and purchase price |\n| Issues with Private Purchases | Difficult to claim deductions due to lack of tax invoices | System accounts for the nature of private purchases |\n| Suitability for the Secondhand Market | May be low | Relatively high |\n| Administrative Requirements | Management of standard tax invoices | Importance of tracking purchase and sales records and item details |\n\nMargin taxation can alleviate the excessive tax burden in the distribution of used goods. However, rigorous record-keeping is essential to prevent false purchase prices, omitted transactions, and the distribution of stolen goods.\n\n### Australia and New Zealand: Deductions for Secondhand Purchases Without Tax Invoices\n\nAustralia and New Zealand operate systems that allow input tax credits for secondhand purchases that meet certain requirements, even if no tax invoice is available. In Korean terms, this can be understood as similar to a “deemed input tax credit.” “Deemed” means that even if an actual tax invoice is missing, the tax system treats the transaction as including a certain amount of tax if it meets the requirements set by law.\n\nUnlike margin taxation, this method allows for a certain deduction at the purchase stage. In return, businesses must retain supporting documentation, such as details regarding the seller, item, price, transaction date, and whether the item was resold.\n\n## Similar Systems in South Korea: Used Cars and Recyclable Waste Materials\n\nSouth Korea also has special deduction provisions designed to account for the characteristics of markets where purchases are made from individuals or non-business entities. Notable examples include used cars and recyclable waste materials.\n\nWhen a used car dealer purchases a vehicle from an individual who cannot issue a tax invoice, the dealer may claim a deduction for a certain percentage of the purchase price as input VAT, provided certain requirements are met. Under the Act on the Limitation of Special Tax Provisions, the special provision for input VAT credits on recyclable waste materials is also administered based on a similar rationale.\n\nFor example, if a business purchases a used car from an individual for 11 million won, it can apply for an input tax credit based on a specific formula, provided it meets the statutory requirements and submits the necessary supporting documentation. However, the specific deduction rate, application period, eligible businesses, and documentation requirements may change depending on amendments to the law; therefore, a review of the latest legislation and tax advice is necessary for actual application.\n\n## The Logic Behind the Argument That Special Provisions Are Needed for Used Cell Phones\n\nThe used cell phone industry raises the need for special tax provisions for the following reasons:\n\n1. The market structure consists largely of individual suppliers.\n2. Businesses effectively bear the purchase costs but have difficulty obtaining tax invoices.\n3. If the burden of non-deductible expenses is reflected in the resale price, consumer prices may rise.\n4. This could create a distortion where undocumented transactions become more advantageous than those conducted through regulated platforms.\n5. Used phones can be relatively easily tracked using unique identifiers such as IMEI numbers.\n\nIn other words, just like used cars, used cell phones are items for which individual units can be easily identified and transaction records can be maintained. Therefore, there are arguments that special provisions for input tax credits or margin taxation could be considered, provided certain conditions are met, such as certified dealers, transaction records, identity verification, checks for stolen or lost devices, and confirmation of personal data deletion.\n\n## Risks to Consider When Designing the System\n\nTax reform for used phones is not simply a matter of reducing taxes. The following risks must be managed simultaneously.\n\n### 1. Fictitious Purchases and Price Manipulation\n\nIntroducing margin taxation or deemed input tax credits could create an incentive to inflate purchase prices to reduce taxes. To prevent this, bank transfer records, purchase contracts, device identification numbers, seller identity verification, and resale records must be managed together.\n\n### 2. Distribution of Stolen or Lost Devices\n\nUsed phones may involve issues such as stolen or lost devices, or devices still under contract. To grant tax exemptions, checks for stolen or lost devices and verification of device condition must be mandatory.\n\n### 3. Personal Information and Data Deletion\n\nSensitive personal information—such as photos, contacts, financial apps, certificates, and messages—may remain on used phones. To build market trust, it is crucial not only to perform a factory reset but also to verify data deletion, check whether the device is unlocked, and confirm that accounts have been logged out.\n\n### 4. Quality Grades and Warranty Standards\n\nThe value of used phones varies significantly depending on their physical condition, battery performance, repair history, and whether they contain genuine parts. If tax benefits are extended to licensed businesses, grading standards and consumer disclosure requirements must also be revised accordingly.\n\n## Comparison of Policy Options\n\n| Option | Advantages | Disadvantages or Considerations | Applicability to Used Phones |\n|---|---|---|---|\n| Maintain Current System | Minimal burden of system changes | Burden of non-deductibility may be passed on to prices | Potential for increased conflict as the market grows |\n| Margin Taxation | Taxation based on actual profit | Mechanisms needed to prevent manipulation of purchase prices | Can draw on examples from the EU and the UK |\n| Deemed Input Tax Credit | Easy to integrate with Korea’s existing special exemption system | Requires design of credit rates, eligibility criteria, and documentation requirements | Can draw on examples from the used car and recycled waste resource sectors |\n| Special Exemption Limited to Certified Businesses | Enhances manageability and transparency | Concerns about barriers to entry for small-scale businesses | Can be combined with transaction tracking requirements |\n| Phased Pilot Implementation | Can be expanded while monitoring side effects | Initial system complexity | Can be applied starting with high-priced devices or certified platforms |\n\n## Important Checklist for Consumers\n\nRegardless of the tax policy discussions regarding used phones, consumers are advised to verify the following points to ensure transaction safety.\n\n- Check whether the device has been reported stolen or lost using the IMEI or device identification number.\n- Verify that the seller is the rightful owner of the device.\n- Check battery performance, screen condition, camera, speakers, charging port, and SIM card recognition.\n- Check whether the device is account-locked, remotely locked, or logged out of the manufacturer’s account.\n- Keep a record of the transaction details, receipts, and warranty terms.\n- Verify that the device has been factory reset and all accounts have been removed to ensure no personal information remains.\n\n## Conclusion\n\nThe expansion of the used phone market has positive effects, including cost savings for consumers, resource reuse, and growth in the platform industry. However, in a system where businesses resell used phones purchased from individuals, the lack of tax invoices makes it difficult to claim input tax credits.\n\nOverseas margin taxation systems and South Korea’s special tax credit provisions for used cars and recycled waste materials can serve as reference models for discussions on the tax system for used phones. However, the introduction of such a system must be designed in conjunction with measures to ensure transaction transparency, prevent theft, protect personal information, and establish quality disclosure standards. As the used phone market continues to grow, there is a need for discussions to simultaneously refine tax policies and rules ensuring transaction safety.","content_html":"\u003ch2\u003e\n\u003ca href=\"#at-a-glance\" class=\"anchor\" id=\"at-a-glance\"\u003e\u003c/a\u003eAt a Glance\u003c/h2\u003e\n\u003cp\u003eThe used smartphone market is growing as a result of a combination of factors: rising prices for new smartphones, shorter replacement cycles, the emergence of platform-based buyback and resale operators, and the expansion of manufacturer trade-in programs. Industry estimates suggest that the volume of used phone transactions in South Korea has recently expanded from the previous annual range of 6 to 7 million units to between 9 and 10 million units. Although the market does not yet have a fully established official statistical system, even if we assume an average transaction price of just 200,000 won per used phone, the annual transaction volume can be estimated at nearly 2 trillion won.\u003c/p\u003e\n\u003cp\u003eHowever, as the market grows, the issue of value-added tax (VAT) becomes increasingly important. The primary sellers of used phones are mostly individual consumers. Since individuals are generally unable to issue tax invoices, businesses that purchase these phones from them find it difficult to claim input tax credits. Conversely, when businesses resell the phones to consumers, they are required to pay value-added tax on the sales price. Critics point out that this structure drives up distribution costs for used phones and can also affect the final consumer price.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#reasons-for-the-rapid-growth-of-the-used-phone-market\" class=\"anchor\" id=\"reasons-for-the-rapid-growth-of-the-used-phone-market\"\u003e\u003c/a\u003eReasons for the Rapid Growth of the Used Phone Market\u003c/h2\u003e\n\u003ch3\u003e\n\u003ca href=\"#1-rising-prices-of-new-smartphones\" class=\"anchor\" id=\"1-rising-prices-of-new-smartphones\"\u003e\u003c/a\u003e1. Rising Prices of New Smartphones\u003c/h3\u003e\n\u003cp\u003eThe prices of the latest flagship smartphones have continued to rise. Rather than buying new devices, consumers are opting for models from one or two generations ago, refurbished devices, or used phones in good condition to reduce costs. The financial burden of device prices—known as “phoneflation”—is a key factor driving demand for used phones.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#2-smartphone-replacement-cycles-and-residual-value\" class=\"anchor\" id=\"2-smartphone-replacement-cycles-and-residual-value\"\u003e\u003c/a\u003e2. Smartphone Replacement Cycles and Residual Value\u003c/h3\u003e\n\u003cp\u003eThe need to replace smartphones arises based on factors such as battery life, camera quality, storage capacity, and operating system support. However, high-end models retain significant residual value even after 2–3 years of use. As a result, existing users can sell their old devices to lower the cost of purchasing a new one, while buyers can acquire high-performance devices at relatively low prices.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#3-the-emergence-of-platform-operators\" class=\"anchor\" id=\"3-the-emergence-of-platform-operators\"\u003e\u003c/a\u003e3. The Emergence of Platform Operators\u003c/h3\u003e\n\u003cp\u003eIn the past, used smartphone transactions were primarily conducted through direct peer-to-peer sales or small retail stores. Recently, however, there has been a rise in platforms that offer inspection, grading, data erasure, warranties, shipping services, and instant buyback options. This shift toward platform-based services has increased trust in transactions and made used smartphones more accessible to the general public.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#4-manufacturer-and-carrier-reward-programs\" class=\"anchor\" id=\"4-manufacturer-and-carrier-reward-programs\"\u003e\u003c/a\u003e4. Manufacturer and Carrier Reward Programs\u003c/h3\u003e\n\u003cp\u003eManufacturers such as Samsung Electronics and mobile carriers operate used phone buyback, trade-in, and return programs to reduce customer churn and encourage the purchase of new products. These programs effectively bring used devices back into the distribution channel, thereby increasing the supply of used phones.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#5-reuse-and-the-circular-economy-trend\" class=\"anchor\" id=\"5-reuse-and-the-circular-economy-trend\"\u003e\u003c/a\u003e5. Reuse and the Circular Economy Trend\u003c/h3\u003e\n\u003cp\u003eUsed phones are products that can reduce electronic waste and promote resource reuse. Smartphones contain high-value components such as metals, batteries, semiconductors, and displays. Re-circulating usable devices rather than disposing of them can lower environmental costs.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#the-structure-of-the-used-phone-trade-and-where-tax-issues-arise\" class=\"anchor\" id=\"the-structure-of-the-used-phone-trade-and-where-tax-issues-arise\"\u003e\u003c/a\u003eThe Structure of the Used Phone Trade and Where Tax Issues Arise\u003c/h2\u003e\n\u003cp\u003eThe used phone trade typically follows this process:\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003eIndividual consumers sell their used smartphones to a platform or a buyer.\u003c/li\u003e\n\u003cli\u003eThe buyer checks the device’s condition, appearance, battery performance, whether it is locked, and whether it has been reported stolen or lost.\u003c/li\u003e\n\u003cli\u003eThe business repairs, resets, grades, packages, and provides a warranty before reselling the device to another consumer.\u003c/li\u003e\n\u003cli\u003eThe business reports value-added tax (VAT) on the resale revenue.\u003c/li\u003e\n\u003c/ol\u003e\n\u003cp\u003eThe problem arises in Step 1. Since individual consumers are generally not businesses, it is difficult for them to issue tax documentation—such as tax invoices or cash receipts—that serves as the basis for input tax credits. Consequently, even if a business actually incurs expenses when purchasing a used phone from an individual, it is difficult to claim the input tax credit under the Value-Added Tax Act.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#why-does-vat-seem-like-a-double-burden\" class=\"anchor\" id=\"why-does-vat-seem-like-a-double-burden\"\u003e\u003c/a\u003eWhy Does VAT Seem Like a Double Burden?\u003c/h2\u003e\n\u003cp\u003eIn principle, VAT is a tax levied on the value newly added at each stage of a transaction. Businesses subtract input tax from output tax and pay the difference. However, since it is difficult to deduct input tax on used phones purchased from individuals, the tax burden on the business may increase when it resells them.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#simple-example\" class=\"anchor\" id=\"simple-example\"\u003e\u003c/a\u003eSimple Example\u003c/h3\u003e\n\u003cp\u003eThe example below is a simplified calculation provided for illustrative purposes. Actual tax amounts may vary depending on the supply price, whether VAT is included, the business operator’s expenses, applicable special provisions, and the method of filing.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eCategory\u003c/th\u003e\n\u003cth\u003eAmount or Calculation\u003c/th\u003e\n\u003cth\u003eDescription\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Category\"\u003ePurchase of a used phone from an individual\u003c/td\u003e\n\u003ctd data-label=\"Amount or Calculation\"\u003e1.1 million won\u003c/td\u003e\n\u003ctd data-label=\"Description\"\u003eIndividuals do not issue tax invoices\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Category\"\u003eResale to a consumer\u003c/td\u003e\n\u003ctd data-label=\"Amount or Calculation\"\u003e1.65 million won\u003c/td\u003e\n\u003ctd data-label=\"Description\"\u003eAssumed to be a price inclusive of VAT\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Category\"\u003eOutput Tax Under General Taxation\u003c/td\u003e\n\u003ctd data-label=\"Amount or Calculation\"\u003e150,000 won\u003c/td\u003e\n\u003ctd data-label=\"Description\"\u003e1,650,000 won × 10/110\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Category\"\u003eDeductible Input Tax\u003c/td\u003e\n\u003ctd data-label=\"Amount or Calculation\"\u003e0 won\u003c/td\u003e\n\u003ctd data-label=\"Description\"\u003eDifficult to deduct without a tax invoice\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Category\"\u003eTax payable\u003c/td\u003e\n\u003ctd data-label=\"Amount or Calculation\"\u003e150,000 won\u003c/td\u003e\n\u003ctd data-label=\"Description\"\u003eBear the full amount of output tax\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Category\"\u003eUnder the tax-on-the-difference method\u003c/td\u003e\n\u003ctd data-label=\"Amount or Calculation\"\u003eApproximately 50,000 won\u003c/td\u003e\n\u003ctd data-label=\"Description\"\u003e550,000 won × 10/110, for simple comparison\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eIn this example, the business owner’s actual economic profit is 550,000 won. However, if the business cannot claim a deduction for purchases without tax invoices, it ends up bearing the VAT included in the entire resale price. Consumers have already paid a price that includes VAT when purchasing a new cell phone, and this tax burden may be reflected in the price again during the used goods distribution stage.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#overseas-systems-margin-taxation-and-deemed-input-tax-credit\" class=\"anchor\" id=\"overseas-systems-margin-taxation-and-deemed-input-tax-credit\"\u003e\u003c/a\u003eOverseas Systems: Margin Taxation and Deemed Input Tax Credit\u003c/h2\u003e\n\u003cp\u003eThe trade in used goods is characterized by the fact that individuals act as suppliers. Reflecting this characteristic, many countries have systems that differ from the standard tax invoice-based deduction method.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#eu-and-the-uk-margin-taxation\" class=\"anchor\" id=\"eu-and-the-uk-margin-taxation\"\u003e\u003c/a\u003eEU and the UK: Margin Taxation\u003c/h3\u003e\n\u003cp\u003eThe EU and the UK operate margin taxation systems for certain items, such as used goods, works of art, and antiques. The key feature of this system is that VAT is calculated not on the total sales price, but only on the difference between the purchase price and the sales price—that is, the margin.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eItem\u003c/th\u003e\n\u003cth\u003eStandard Taxation\u003c/th\u003e\n\u003cth\u003eMargin Taxation\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Item\"\u003eTax Base\u003c/td\u003e\n\u003ctd data-label=\"Standard Taxation\"\u003eSales price or supply value\u003c/td\u003e\n\u003ctd data-label=\"Margin Taxation\"\u003eDifference between sales price and purchase price\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Item\"\u003eIssues with Private Purchases\u003c/td\u003e\n\u003ctd data-label=\"Standard Taxation\"\u003eDifficult to claim deductions due to lack of tax invoices\u003c/td\u003e\n\u003ctd data-label=\"Margin Taxation\"\u003eSystem accounts for the nature of private purchases\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Item\"\u003eSuitability for the Secondhand Market\u003c/td\u003e\n\u003ctd data-label=\"Standard Taxation\"\u003eMay be low\u003c/td\u003e\n\u003ctd data-label=\"Margin Taxation\"\u003eRelatively high\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Item\"\u003eAdministrative Requirements\u003c/td\u003e\n\u003ctd data-label=\"Standard Taxation\"\u003eManagement of standard tax invoices\u003c/td\u003e\n\u003ctd data-label=\"Margin Taxation\"\u003eImportance of tracking purchase and sales records and item details\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eMargin taxation can alleviate the excessive tax burden in the distribution of used goods. However, rigorous record-keeping is essential to prevent false purchase prices, omitted transactions, and the distribution of stolen goods.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#australia-and-new-zealand-deductions-for-secondhand-purchases-without-tax-invoices\" class=\"anchor\" id=\"australia-and-new-zealand-deductions-for-secondhand-purchases-without-tax-invoices\"\u003e\u003c/a\u003eAustralia and New Zealand: Deductions for Secondhand Purchases Without Tax Invoices\u003c/h3\u003e\n\u003cp\u003eAustralia and New Zealand operate systems that allow input tax credits for secondhand purchases that meet certain requirements, even if no tax invoice is available. In Korean terms, this can be understood as similar to a “deemed input tax credit.” “Deemed” means that even if an actual tax invoice is missing, the tax system treats the transaction as including a certain amount of tax if it meets the requirements set by law.\u003c/p\u003e\n\u003cp\u003eUnlike margin taxation, this method allows for a certain deduction at the purchase stage. In return, businesses must retain supporting documentation, such as details regarding the seller, item, price, transaction date, and whether the item was resold.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#similar-systems-in-south-korea-used-cars-and-recyclable-waste-materials\" class=\"anchor\" id=\"similar-systems-in-south-korea-used-cars-and-recyclable-waste-materials\"\u003e\u003c/a\u003eSimilar Systems in South Korea: Used Cars and Recyclable Waste Materials\u003c/h2\u003e\n\u003cp\u003eSouth Korea also has special deduction provisions designed to account for the characteristics of markets where purchases are made from individuals or non-business entities. Notable examples include used cars and recyclable waste materials.\u003c/p\u003e\n\u003cp\u003eWhen a used car dealer purchases a vehicle from an individual who cannot issue a tax invoice, the dealer may claim a deduction for a certain percentage of the purchase price as input VAT, provided certain requirements are met. Under the Act on the Limitation of Special Tax Provisions, the special provision for input VAT credits on recyclable waste materials is also administered based on a similar rationale.\u003c/p\u003e\n\u003cp\u003eFor example, if a business purchases a used car from an individual for 11 million won, it can apply for an input tax credit based on a specific formula, provided it meets the statutory requirements and submits the necessary supporting documentation. However, the specific deduction rate, application period, eligible businesses, and documentation requirements may change depending on amendments to the law; therefore, a review of the latest legislation and tax advice is necessary for actual application.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#the-logic-behind-the-argument-that-special-provisions-are-needed-for-used-cell-phones\" class=\"anchor\" id=\"the-logic-behind-the-argument-that-special-provisions-are-needed-for-used-cell-phones\"\u003e\u003c/a\u003eThe Logic Behind the Argument That Special Provisions Are Needed for Used Cell Phones\u003c/h2\u003e\n\u003cp\u003eThe used cell phone industry raises the need for special tax provisions for the following reasons:\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003eThe market structure consists largely of individual suppliers.\u003c/li\u003e\n\u003cli\u003eBusinesses effectively bear the purchase costs but have difficulty obtaining tax invoices.\u003c/li\u003e\n\u003cli\u003eIf the burden of non-deductible expenses is reflected in the resale price, consumer prices may rise.\u003c/li\u003e\n\u003cli\u003eThis could create a distortion where undocumented transactions become more advantageous than those conducted through regulated platforms.\u003c/li\u003e\n\u003cli\u003eUsed phones can be relatively easily tracked using unique identifiers such as IMEI numbers.\u003c/li\u003e\n\u003c/ol\u003e\n\u003cp\u003eIn other words, just like used cars, used cell phones are items for which individual units can be easily identified and transaction records can be maintained. Therefore, there are arguments that special provisions for input tax credits or margin taxation could be considered, provided certain conditions are met, such as certified dealers, transaction records, identity verification, checks for stolen or lost devices, and confirmation of personal data deletion.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#risks-to-consider-when-designing-the-system\" class=\"anchor\" id=\"risks-to-consider-when-designing-the-system\"\u003e\u003c/a\u003eRisks to Consider When Designing the System\u003c/h2\u003e\n\u003cp\u003eTax reform for used phones is not simply a matter of reducing taxes. The following risks must be managed simultaneously.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#1-fictitious-purchases-and-price-manipulation\" class=\"anchor\" id=\"1-fictitious-purchases-and-price-manipulation\"\u003e\u003c/a\u003e1. Fictitious Purchases and Price Manipulation\u003c/h3\u003e\n\u003cp\u003eIntroducing margin taxation or deemed input tax credits could create an incentive to inflate purchase prices to reduce taxes. To prevent this, bank transfer records, purchase contracts, device identification numbers, seller identity verification, and resale records must be managed together.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#2-distribution-of-stolen-or-lost-devices\" class=\"anchor\" id=\"2-distribution-of-stolen-or-lost-devices\"\u003e\u003c/a\u003e2. Distribution of Stolen or Lost Devices\u003c/h3\u003e\n\u003cp\u003eUsed phones may involve issues such as stolen or lost devices, or devices still under contract. To grant tax exemptions, checks for stolen or lost devices and verification of device condition must be mandatory.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#3-personal-information-and-data-deletion\" class=\"anchor\" id=\"3-personal-information-and-data-deletion\"\u003e\u003c/a\u003e3. Personal Information and Data Deletion\u003c/h3\u003e\n\u003cp\u003eSensitive personal information—such as photos, contacts, financial apps, certificates, and messages—may remain on used phones. To build market trust, it is crucial not only to perform a factory reset but also to verify data deletion, check whether the device is unlocked, and confirm that accounts have been logged out.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#4-quality-grades-and-warranty-standards\" class=\"anchor\" id=\"4-quality-grades-and-warranty-standards\"\u003e\u003c/a\u003e4. Quality Grades and Warranty Standards\u003c/h3\u003e\n\u003cp\u003eThe value of used phones varies significantly depending on their physical condition, battery performance, repair history, and whether they contain genuine parts. If tax benefits are extended to licensed businesses, grading standards and consumer disclosure requirements must also be revised accordingly.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#comparison-of-policy-options\" class=\"anchor\" id=\"comparison-of-policy-options\"\u003e\u003c/a\u003eComparison of Policy Options\u003c/h2\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eOption\u003c/th\u003e\n\u003cth\u003eAdvantages\u003c/th\u003e\n\u003cth\u003eDisadvantages or Considerations\u003c/th\u003e\n\u003cth\u003eApplicability to Used Phones\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Option\"\u003eMaintain Current System\u003c/td\u003e\n\u003ctd data-label=\"Advantages\"\u003eMinimal burden of system changes\u003c/td\u003e\n\u003ctd data-label=\"Disadvantages or Considerations\"\u003eBurden of non-deductibility may be passed on to prices\u003c/td\u003e\n\u003ctd data-label=\"Applicability to Used Phones\"\u003ePotential for increased conflict as the market grows\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Option\"\u003eMargin Taxation\u003c/td\u003e\n\u003ctd data-label=\"Advantages\"\u003eTaxation based on actual profit\u003c/td\u003e\n\u003ctd data-label=\"Disadvantages or Considerations\"\u003eMechanisms needed to prevent manipulation of purchase prices\u003c/td\u003e\n\u003ctd data-label=\"Applicability to Used Phones\"\u003eCan draw on examples from the EU and the UK\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Option\"\u003eDeemed Input Tax Credit\u003c/td\u003e\n\u003ctd data-label=\"Advantages\"\u003eEasy to integrate with Korea’s existing special exemption system\u003c/td\u003e\n\u003ctd data-label=\"Disadvantages or Considerations\"\u003eRequires design of credit rates, eligibility criteria, and documentation requirements\u003c/td\u003e\n\u003ctd data-label=\"Applicability to Used Phones\"\u003eCan draw on examples from the used car and recycled waste resource sectors\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Option\"\u003eSpecial Exemption Limited to Certified Businesses\u003c/td\u003e\n\u003ctd data-label=\"Advantages\"\u003eEnhances manageability and transparency\u003c/td\u003e\n\u003ctd data-label=\"Disadvantages or Considerations\"\u003eConcerns about barriers to entry for small-scale businesses\u003c/td\u003e\n\u003ctd data-label=\"Applicability to Used Phones\"\u003eCan be combined with transaction tracking requirements\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Option\"\u003ePhased Pilot Implementation\u003c/td\u003e\n\u003ctd data-label=\"Advantages\"\u003eCan be expanded while monitoring side effects\u003c/td\u003e\n\u003ctd data-label=\"Disadvantages or Considerations\"\u003eInitial system complexity\u003c/td\u003e\n\u003ctd data-label=\"Applicability to Used Phones\"\u003eCan be applied starting with high-priced devices or certified platforms\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003ch2\u003e\n\u003ca href=\"#important-checklist-for-consumers\" class=\"anchor\" id=\"important-checklist-for-consumers\"\u003e\u003c/a\u003eImportant Checklist for Consumers\u003c/h2\u003e\n\u003cp\u003eRegardless of the tax policy discussions regarding used phones, consumers are advised to verify the following points to ensure transaction safety.\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003eCheck whether the device has been reported stolen or lost using the IMEI or device identification number.\u003c/li\u003e\n\u003cli\u003eVerify that the seller is the rightful owner of the device.\u003c/li\u003e\n\u003cli\u003eCheck battery performance, screen condition, camera, speakers, charging port, and SIM card recognition.\u003c/li\u003e\n\u003cli\u003eCheck whether the device is account-locked, remotely locked, or logged out of the manufacturer’s account.\u003c/li\u003e\n\u003cli\u003eKeep a record of the transaction details, receipts, and warranty terms.\u003c/li\u003e\n\u003cli\u003eVerify that the device has been factory reset and all accounts have been removed to ensure no personal information remains.\u003c/li\u003e\n\u003c/ul\u003e\n\u003ch2\u003e\n\u003ca href=\"#conclusion\" class=\"anchor\" id=\"conclusion\"\u003e\u003c/a\u003eConclusion\u003c/h2\u003e\n\u003cp\u003eThe expansion of the used phone market has positive effects, including cost savings for consumers, resource reuse, and growth in the platform industry. However, in a system where businesses resell used phones purchased from individuals, the lack of tax invoices makes it difficult to claim input tax credits.\u003c/p\u003e\n\u003cp\u003eOverseas margin taxation systems and South Korea’s special tax credit provisions for used cars and recycled waste materials can serve as reference models for discussions on the tax system for used phones. However, the introduction of such a system must be designed in conjunction with measures to ensure transaction transparency, prevent theft, protect personal information, and establish quality disclosure standards. As the used phone market continues to grow, there is a need for discussions to simultaneously refine tax policies and rules ensuring transaction safety.\u003c/p\u003e\n","tags":["Everyday Finance","Used phone","Value added tax","Margin taxation","Deemed input tax credit"],"faqs":[{"question":"Why is the used cell phone market growing so rapidly?","answer":"The used phone market is growing as a result of a combination of rising prices for new smartphones, the extended lifespan of high-performance devices, platform-based buyback services, manufacturer trade-in programs, and demand for resource reuse."},{"question":"Why is it difficult for businesses that purchase used cell phones from individuals to claim a VAT deduction?","answer":"Individual consumers generally cannot issue tax invoices. Even if a business owner has actually incurred expenses for purchasing used cell phones, it is difficult to claim a VAT deduction due to a lack of supporting documentation, such as a tax invoice, for the input tax credit."},{"question":"What does it mean when people say taxes are charged twice on the resale of used phones?","answer":"When consumers purchase a new cell phone, they have already paid a price that includes value-added tax. Later, when that cell phone is sold on the secondhand market, if the business is unable to claim a tax credit for the purchase from an individual, the value-added tax burden may be reflected again in the resale price, which could appear to be a double tax."},{"question":"What is margin taxation?","answer":"Margin taxation is a method of calculating value-added tax (VAT) based solely on the difference between the purchase price and the sale price, rather than on the total sale price of used goods. The EU and the UK operate this system for certain transactions involving used goods."},{"question":"What is the input tax credit?","answer":"The input tax credit for specified purchases is a system that allows a certain amount to be recognized as input tax and deducted even for purchases without a tax invoice, provided that the requirements stipulated by law are met. In South Korea, similar special provisions are in place for used cars and recycled waste materials."},{"question":"Can the special input tax credit exception be applied to used cell phones, just as it is for used cars?","answer":"From a policy perspective, this is something that can be considered. However, in order to implement it, requirements such as business entity verification, management of device identification numbers, purchase agreements, checks for stolen or lost devices, confirmation of personal information deletion, and retention of resale records must be incorporated into the design."},{"question":"If a special tax exemption for used phones is introduced, will consumer prices drop immediately?","answer":"We cannot definitively conclude that prices will drop immediately. For the reduction in tax burdens to lead to lower sales prices, market competition, platform fees, inspection costs, warranty costs, and changes in supply must all come into play."},{"question":"What should consumers check first when buying a used phone?","answer":"You should verify whether the phone has been stolen or lost, check if the account is unlocked, assess battery performance, inspect the physical condition and functionality, confirm that personal information has been deleted, and review the receipt and warranty terms. In particular, the ability to track transactions using the device’s identification number is key to a safe used phone transaction."}],"sources":[{"url":"https://www.law.go.kr/법령/부가가치세법","title":"National Law Information Center: Value-Added Tax Act","type":"source"},{"url":"https://www.law.go.kr/법령/조세특례제한법","title":"National Law Information Center: Act on the Limitation of Special Tax Exemptions and Deductions","type":"source"},{"url":"https://www.gov.uk/vat-margin-schemes","title":"GOV.UK VAT Margin Schemes","type":"source"},{"url":"https://taxation-customs.ec.europa.eu/taxation/vat/vat-businesses/vat-special-schemes/vat-margin-scheme_en","title":"European Commission VAT Margin Scheme","type":"source"},{"url":"https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/rules-for-specific-transactions/gst-and-second-hand-goods","title":"Australian Taxation Office: GST and Secondhand Goods","type":"source"},{"url":"https://www.ird.govt.nz/gst/claiming-credits/secondhand-goods","title":"Inland Revenue New Zealand GST Credits for Secondhand Goods","type":"source"}],"images":[{"id":213,"url":"https://injoys.com/rails/active_storage/blobs/redirect/eyJfcmFpbHMiOnsiZGF0YSI6MjA0OSwicHVyIjoiYmxvYl9pZCJ9fQ==--c7e35c9ac05969047837cbec35fd4d6720dc261a/ai-2e27125d.webp","is_representative":true,"generation_method":"ai_image","license":"ai_generated","mime_type":"image/webp","translations":{"ko":{"alt":"컨베이어 위 중고폰을 검수하는 사람들과 포장 상자, 세금 문서 일러스트","caption":"중고폰이 검수와 포장을 거쳐 유통되는 과정과 과세 논의를 보여준다.","description":null},"en":{"alt":"People inspecting used phones on a conveyor with boxes, check marks, and tax documents","caption":"The illustration shows used phones moving through inspection, resale, and tax-related documentation.","description":null},"ja":{"alt":"ベルトコンベア上の中古スマホを検品する人々と箱、税務書類のイラスト","caption":"中古スマホが検品や梱包を経て流通し、税務書類と結び付く様子を示している。","description":null},"es":{"alt":"Personas revisando teléfonos usados en una cinta con cajas, marcas de verificación y documentos fiscales","caption":"La ilustración muestra teléfonos usados que pasan por revisión, reventa y trámites tributarios.","description":null},"id":{"alt":"Orang memeriksa ponsel bekas di konveyor dengan kotak, tanda centang, dan dokumen pajak","caption":"Ilustrasi ini menunjukkan ponsel bekas melalui proses pemeriksaan, penjualan kembali, dan dokumen pajak.","description":null},"pt":{"alt":"Pessoas inspecionando celulares usados em uma esteira com caixas, marcas de aprovação e documentos fiscais","caption":"A ilustração mostra celulares usados passando por inspeção, revenda e documentação tributária.","description":null},"zh-hant":{"alt":"人們在輸送帶旁檢查二手機，周圍有紙箱、勾選標記與稅務文件","caption":"插圖呈現二手機經檢驗、轉售與稅務文件處理的流程。","description":null}}},{"id":214,"url":"https://injoys.com/rails/active_storage/blobs/redirect/eyJfcmFpbHMiOnsiZGF0YSI6MjA1NSwicHVyIjoiYmxvYl9pZCJ9fQ==--247d78914b586f2ad1b32d50d2d1eb5dd02cd78a/ai-979e0a49.webp","is_representative":false,"generation_method":"ai_image","license":"ai_generated","mime_type":"image/webp","translations":{"ko":{"alt":"중고폰 거래와 세금·재활용을 상징하는 스마트폰, 상점, 저울 일러스트","caption":"중고폰 시장의 거래 흐름과 부가가치세 쟁점을 시각화한 일러스트입니다.","description":null},"en":{"alt":"Illustration of used phone trading with a smartphone, shop, scales, coins, and recycling symbols","caption":"The illustration visualizes used phone commerce and related VAT considerations.","description":null},"ja":{"alt":"中古スマホ取引を示すスマートフォン、店舗、天秤、硬貨、リサイクルのイラスト","caption":"中古スマホ市場の取引と付加価値税の論点を表したイラストです。","description":null},"es":{"alt":"Ilustración de comercio de móviles usados con smartphone, tienda, balanza, monedas y reciclaje","caption":"La ilustración contextualiza el mercado de móviles usados y sus cuestiones de IVA.","description":null},"id":{"alt":"Ilustrasi perdagangan ponsel bekas dengan smartphone, toko, timbangan, koin, dan daur ulang","caption":"Ilustrasi ini menggambarkan pasar ponsel bekas dan isu PPN yang menyertainya.","description":null},"pt":{"alt":"Ilustração de comércio de celulares usados com smartphone, loja, balança, moedas e reciclagem","caption":"A ilustração contextualiza o mercado de celulares usados e questões de IVA.","description":null},"zh-hant":{"alt":"二手手機交易插圖，包含智慧型手機、店鋪、天平、硬幣與回收符號","caption":"這張插圖呈現二手手機市場交易與增值稅相關議題。","description":null}}}],"published_at":"2026-07-18T05:41:19+09:00","updated_at":"2026-07-18T05:41:19+09:00","license":"cc_by","translation_status":"reviewed","available_locales":["ko","en","ja","es"],"data_locales":["ko","en","ja","es","id","pt","zh-hant"],"url":"https://injoys.com/en/articles/used-phone-market-vat-issue-korea"}