Outbreak bringing out the worst, and the NTS is hot on the trail

As face masks have become a currency in their own right, the tax authorities are not far behind. They are uncovering all manners of evasion based on the value and mispricing of what was just weeks ago a forgettable product.

In January, a maker of face masks abruptly cut off supply to established clients. The company diverted orders to the owner’s son, who runs a mask distribution company, and charged the son’s company less than half the usual price.

The factory price of each mask was 750 won (63 cents), but the son’s company paid 300 won each for 3.5 million masks. He then sold them for 3,500 won to 4,500 won a piece, a tenfold increase.

According to the National Tax Service (NTS), the company sold the masks for cash to hide the profits. The company is also under investigation for other tax violations, including paying wages to relatives who didn’t actually work at the company.

In another case, a distributor specializing in medical goods previously only dealt in a limited quantity of masks. After the demand for masks surged, the company bought 200,000 pieces for 800 won each. The company’s owner and his family sold the masks on Joonggonara, the popular secondhand online mall, for between 3,500 and 5,000 won in cash each and didn’t declare the profit.

A company that specializes in construction materials and has never dealt in protective masks is also under investigation.

The company recently bought 3 million protective masks for 700 won each and is suspected of selling the masks to exporters or those that visited the company at 3,500 to 4,000 won apiece.

In all cases the payments were made in cash.

A social media influencer is being investigated by the tax agency for trying to sell masks that she acquired from mask manufacturers and distribution companies to her followers, taking payments in cash.

She posted on her social media that she had acquired a limited number of masks and was selling them 2,000 won. She immediately added on her post that the masks were all sold out.

When her followers inquired about possible additional sales, she would send a private reply in which she asked the buyers to pay in cash to accounts under the names of relatives.

These are a few of the 52 cases against online sellers and distributors of masks the NTS is investigating.

The tax agency said it sent out 550 field agents to investigate 275 mask manufacturers and distributors since Feb. 25.

The tax agency crackdown on mask scams comes at a time when the Moon Jae-in administration is facing a backlash for failing to ensure a stable supply of masks.

The government on Thursday announced that 3.5 million masks would be on sale at pharmacies, post offices and NongHyup’s Hanaro Mart starting Friday. But the shelves remained empty.

No sign of improvement was evident this week, and anger against the government has been on the rise as long lines have formed at the listed venues. Top government officials apologized for their miscalculations.

Vice Finance Minister Kim Yong-beom visited a mask manufacturer in Gunpo, Gyeonggi, where he said the government is currently making efforts to ease the public’s fear over the shortage of masks.

During a cabinet meeting, the government on Tuesday approved spending 77.1 billion won for countering the coronavirus outbreak. This includes 29 billion won that will be used on the supply of protective masks.

First, 7 million masks are to be supplied to vulnerable residents including senior citizens and those in lower-income households living in Daegu and North Gyeongsang, which are the epicenter of the recent coronavirus crisis. Additionally, 12 million masks will be supplied to medical workers around the country.

A total of 7 billion won will be spent on raising the productivity of mask manufacturers, including increasing the supply of key materials needed in the making of masks.

“Today’s contingency reserve is to cut off the coronavirus spread while minimizing the outbreak’s influence on average Korean lives by stabilizing the supply of masks and supporting emergency child care support,” Finance Minister Hong Nam-ki said Tuesday. “[However,] as there is a need for more aggressive fiscal actions, we plan to submit the supplementary budget to the National Assembly this week.”

The supplementary budget is expected to exceed 11 trillion won, almost the same size as in 2015 when the country faced the Middle East respiratory syndrome, or MERS, outbreak.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]