[EDITORIALS]Bring back the spending

Korean companies’ entertainment expenses are too high. According to the National Tax Service, domestic firms spent 4.7 trillion won ($4 billion) in total on entertainment in 2002. Some analysts estimate that the actual entertainment expenses exceed 10 trillion won a year, because many companies put a part of their entertainment spending in other accounts because of the ceiling for tax benefits. The tax agency does not recognize entertainment expenses above 0.2 percent of a company’s sales as eligible for tax benefits. Actually, in 43 percent of the tax evasion cases that were exposed in 2002, the companies placed entertainment spending in the “management expenses” and “other expenditures” accounts. The massive spending on entertainment is weakening the competitiveness of domestic firms.
So reform is needed. The new tax rule on reporting entertainment expenses that the National Tax Service introduced in January is failing to reform Korean companies’ entertainment culture, but is still causing negative effects. The new rule requires companies to report every one-time entertainment expenditure of more than 500,000 won ($430) to the tax agency.
According to the results of a poll that the Federation of Korean Industries released yesterday, 96.5 percent of the companies questioned said that they would have no choice but to dodge the rule, perhaps by having a receipt for more than 500,000 won divided into several receipts of lower value. Such practices will make all businessmen lawbreakers. And the National Tax Service could threaten businessmen; the new tax rule could provide the government with a tool for trapping the business world. A rule far removed from reality, even if it has a good goal, will only bring about evasions of the rule and social waste.
The timing of the new tax rule was not proper either. It is difficult to understand why the National Tax Service introduced a rule that would obviously cause a cut in consumption while the government is making efforts to boost the domestic economy.
Recognizing that, Lee Hun-jai, the new economic deputy prime minister, said, “The intention of the new rule is good in the sense of making the entertainment culture more transparent, but the timing was not right.”
The new rule should be reviewed immediately.