Tax agency goes after fake fuel to fund Park’s welfare pledges

As the first step toward fulfilling President Park Geun-hye’s campaign pledge to boost revenues by taxing the underground economy, the National Tax Service (NTS) has launched investigations into 66 individuals suspected of involvement in the fake fuel market.

Counterfeit fuel products are likely the first to go under the tax agency’s microscope because of the massive scale of taxes avoided by the industry - an estimated 1.7 trillion won, according to the Korea Petroleum Quality and Distribution.

The number was put at 467.9 billion won for just the first half of last year.

The government suspects that money made through such bogus fuel flows into the underground and ends up financing a range of illegal activities.

Fake fuel is made by mixing cheaper products, such as kerosene or solvents, which aren’t taxed, with gasoline and diesel. For gasoline, 48 percent of the retail price at the gas pumps is taxed; the number is 39 percent for diesel.

Counterfeit fuel products are banned as they are highly unstable and pose a danger to consumers. They also damage engines and cause more pollutants to be emitted into the air.

“Through this investigation, we will track down the money flow of those involved in the whole process of such fake products, from manufacturing to distribution, using data provided by the Financial Intelligence Unit,” said an NTS official, referring to the financial data-collecting body of the government.

Information on financial transactions exceeding 10 million won falls under the jurisdiction of the FIU.

If the tax evasion charges are proven, the tax agency said it will collect the unpaid amounts and pass the cases on to prosecutors for criminal investigations.

The suspects are currently believed to manage the money they make from the fake fuel business in bank accounts opened under other people’s names, such as those of friends or family.

The tax agency is planning to expand this type of probe to a range of other illicit industries, including counterfeit alcohol.

“We plan to strengthen our tax probes into those who make fake alcohol, illegal lenders, high income earners who are dodging taxes and offshore tax evaders,” said the official.

The tax agency has relocated 400 of its employees from its headquarters to local tax offices to step up investigations into shady businesses that are eluding the tax probes.

Last year during the presidential campaign, then-candidate Park mentioned policing the underground economy for the first time as a means to come up with the funds necessary to finance her extended welfare programs.

The underground economy is estimated to be worth roughly 370 trillion won, which is the equivalent of 33 percent of the nation’s entire GDP. President Park Geun-hye has pledged to spend more than 100 trillion won on welfare.

By Lee Ho-jeong, Yonhap [ojlee82@joongang.co.kr]