Tax service to ease investigations of troubled industriesThe local business community is welcoming the government’s decision to reduce tax investigations into industries that are struggling, including shipping, shipbuilding and construction.
The National Tax Service confirmed this approach on Thursday during its report to the National Assembly’s Strategy and Finance Committee, saying it would keep the size of its tax investigations the same as last year, which is a slight reduction from its original plan.
The tax agency last week said through a release that since last year it has been refraining from conducting tax investigations on businesses in struggling sectors. That decision was still valid, it said.
The Park Geun-hye administration has made tax investigations a part of its policies, and many big conglomerates, including Hyundai Motor, Posco, Lotte, CJ and Hyosung, have all been investigated or are facing investigations by the National Tax Service.
However, the business sector complained that the tax investigations were hurting them, particularly in investments.
The tax service has said that it aims to collect 204.9 trillion won ($192 billion) of taxes this year, up 14.7 trillion won from 2012, mostly by focusing on businesses that are most prone to tax evasion.
But now the tax agency is shifting to ensure it does not stifle business.
“It’s a good thing that the government is trying to provide relief for companies that are facing difficulties,” said an official from a major shipping company. “It’s not that tax investigations are wrong, but the timing just isn’t right because many companies in our industry are just trying to survive these days.”
For shipbuilding, Hyundai Heavy Industries, the world’s largest shipbuilder, reported sales of 54.18 trillion won last year, down 1.4 percent from 2012, with profits plunging 60 percent to 802 billion won on a consolidated basis. This is the first time in three years that the shipbuilder has reported an operating profit of less than 1 trillion won.
The shipbuilder explained how orders secured two or three years ago at a discount are now hurting its profits. However, the company is expected to recover in a few years.
“After 2015, when ship price increases are reflected in their financial sheets, shipbuilders will likely overcome their struggling performances,” said Park Min, an analyst at Korea Investment and Securities said.
The shipping industry said that tax investigations now could mean closing their businesses, due to the severity of the downturn.
The nation’s top maritime shipping companies, Hanjin Shipping and Hyundai Merchant Marine, have been busy selling assets in recent month to improve their cash standing.
Last December Hanjin decided to sell its bulk carrier business, which accounts for more than 10 percent of total sales, to a private equity fund for 300 billion won, and it is also trying to sell buildings that the company owns overseas.
Even Hanjin Shipping Chairwoman Choi Eun-young is rumored to be handing her managerial rights to Hanjin Group Chairman Cho Yang-ho, her brother-in-law, in exchange for helping the troubled company.
Hyundai Merchant Marine announced on Wednesday that it sold its liquefied natural gas transport business for 1.1 trillion won. The liquefied natural gas transport business has been one of the biggest and steadiest cash cows for the company, thanks to a 20-year transport contract with Korea Gas Corporation.
In December, Hyundai Merchant Marine also sold its 18,097 containers for 56.3 billion won and generated another 46.5 billion won by selling its 1.13 million shares in KB Financial Group.
For the construction industry, most major builders - aside from Hyundai Engineering and Construction - saw their operating profits decline sharply, with some even reporting losses last year. Although construction companies are still winning overseas orders, industry insiders said losses incurred from local project financing must be overcome for builders to recover their financial health.
BY JOO KYUNG-DON [email@example.com]