[EDITORIALS]Faulty Investigation, Faulty Results

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[EDITORIALS]Faulty Investigation, Faulty Results

Some results of the four-month-long tax probe into media companies were announced Wednesday. The National Tax Service said it will add a total of 505.6 billion won ($388.9 million) to the tax bills of 23 newspapers and broadcasting companies. It is deliberating whether to report six or seven companies suspected of tax evasion to the prosecutors. As we have said in the past, we welcome regular tax audits that are in accordance with the law and administrative precedents.

But the irregular practices and procedures of the investigators in the course of this probe raised suspicions that they intended to tarnish the image of media companies. To begin with, the National Tax Service deployed hundreds of employees in early February to conduct a simultaneous probe of media companies. In addition, the service hastily announced the results of its investigation the day after it concluded. That speed in analyzing the results is unprecedented, and people have reason to wonder if the results of the probe was predetermined. The additional levy is the largest ever on a single industry, and is also staggering because annual revenue at most media companies barely reaches 300 billion won.

This is also the first time the National Tax Service has announced the results of a tax probe except when seeking prosecution of individuals or companies as tax evaders. It also said it will announce the names of the companies to be sent to prosecutors in a few days. Making repeated announcements on a single case is unprecedented; the service may be trying to humiliate media companies by labeling them as unethical, just as pro-government press reform groups do.

We also point out that the authorities resorted to their own interpretation of the law too often and applied some tax regulations rather creatively. The National Tax Service said it will add 68.8 billion won in additional taxes on imputed revenue from free copies that exceed 20 percent of paid circulation. This interpretation completely ignores the special nature of the newspaper business, and the percentage limit of free copies is not stipulated in tax law. Free copies and free advertisements are unique to the media business and are a customary practice, not an act intended to evade taxes. The money reporters spend in gathering information is a significant cost to media firms, and expenses incurred to attract advertisements are identical to promotional expenses at other firms. It was wrong of the National Tax Service to say these were entertainment expenses and disallow their deduction.

The government's announcement of a strengthened set of regulations on newspaper companies coincided with the end of the tax probe, which again gives the impression that these actions are intended to put pressure on newspaper companies. In particular, the new regulations leave ample room in the future for the government to rein in the so-called "big three" newspapers - JoongAng, Chosun and Dong-a. If the government's intention is to call the entire newspaper industry an unethical group and to undermine its role as a provider of constructive criticism, it should not be allowed to do so.

Had this round of tax investigations been a principled, normal probe, as the government maintains, then it should have been used to strengthen the role of the press, to streamline regulations and practices rather than tarnish the image of media companies. The Fair Trade Commission should not attempt to intervene in the media industry with new regulations. Instead, it should support the effort to foster a new tradition of marketing and advertising by allowing media companies to reform themselves.
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