North hikes tax rates on companies in Kaesong

North Korea unilaterally revised taxation rates for the inter-Korean industrial complex in Kaesong, jacking up taxes imposed on companies from the South.

The JoongAng Ilbo found that Pyongyang made revisions of the taxation regulation on running the Kaesong Industrial Complex on July 18 without the consent of Seoul or companies running factories there.

The Ministry of Unification told the JoongAng Ilbo yesterday that the North unilaterally altered 117 out of 120 clauses in the regulations and notified the South Korean government of its decision on Aug. 2.

Under the new clauses, the North Korean regime can unilaterally determine how much tax it will levy on the Southern companies and demand overdue taxes for up to eight years.

Some Southern companies are already following the new rules. The Unification Ministry said 19 out of 123 South Korean companies have paid the new tax rates to the regime.

“We have to report all of our products’ current prices to the North Korean tax office,” a South Korean businessman told the JoongAng Ilbo. “If they think our claims are ‘inappropriate,’ they unilaterally set the prices by themselves and notify us.”

The businessman said that last month, his company reported that the price of a certain product was $2, but the North Korean tax office assessed it at $3 and demand additional taxes.

The businessman allegedly paid $30,000 in so-called “overdue” taxes.

If the Southern companies resist the taxes, the regime threatens to cut off their supplies.

The South Korean government officially protested the new taxes in September.

A South Korean government official told the JoongAng Ilbo that Seoul demanded Pyongyang “immediately revise the unprecedented taxation, which can’t be found in international custom.” But the regime allegedly responded that it “has all exclusive rights” to revise the regulations and warned the South “to keep mum on the issue.”

Taxation comes under the Law of the Kaesong Industrial Zone signed by the two Koreas in 2004. The law requires agreement on both sides.

Kim Yeon-cheol, a North Korean studies professor at Inje University, said, “It seems to be a side effect of the strained inter-Korean relations.”

By Lee Won-jean [heejin@joongang.co.kr]