Tax credits go to wrong people

A tax benefit intended to encourage shoppers to use traditional markets is actually being applied on spending at fancy department stores, Daiso 1,000-won stores and even cram schools.

The problem is a technical reporting glitch between credit card companies and the tax department. But ordinary taxpayers may get tax credits they don’t deserve in the least.

One lucky taxpayer may get the traditional market tax credit for a package tour he took to Cambodia.

Mr. Lee, a 30-year-old office worker, got a very pleasant surprise when he checked his year-end tax return on the National Tax Service’s website. Lee rarely makes purchases at any traditional market. But some items he charged on his credit card were labeled as being bought from a traditional market.

Checking the details, Lee found that clothing he purchased at Uniqlo in Lotte’s Young Plaza in downtown Seoul were marked as traditional market purchases.

Young Plaza mostly sells fashion and lifestyle products targeted at young consumers. It’s the opposite of a traditional market.

“The items that I bought at Young Plaza after March when the year-end settlement is completed are labeled as being from a traditional market,” Lee said. “If this continues I might get a refund on this year’s tax settlement!”

The same traditional market tax refund was applied on items bought at Daiso, the 1,000-won stores, in which Daiso Sangyo of Japan owns a 34 percent stake. Daiso’s Korean operation had revenues of 746.5 billion won ($729 million) last year. It’s no traditional market.

When making purchases at Daiso, the credit card spending address comes out as Gangnam and the site of its headquarters is categorized as a traditional market.

A private English language cram school in Yangcheon District in southwestern Seoul is another private business labeled as a traditional market. If students or their families pay by credit card, the Gangnam address is listed as a traditional market.

“Even the hagwon didn’t know its students were getting the traditional market tax credit,” said an official at the Yangcheon District office.

A tax credit up to 1 million won was first adopted in 2012 in order to help the traditional markets, which are struggling to compete against big retailers like department stores and discount stores.

In order to get such a credit, first a person has to spend more than 25 percent of his or her annual salary on either a credit or debit card.

The government provides a tax credit of up to 3 million won for that, a way of cracking down on unreported revenues by merchants.

A separate credit of up to 1 million won is offered when 30 percent of the spending is done at traditional markets.

Local governments provided the postal codes of traditional markets in their areas to the National Tax Service, which passed them on to credit card companies through the Credit Finance Association. The credit card companies report the spending done in those postal codes to the National Tax Services, which credits the taxpayer.

The problem seems to be that spending at establishments with the same postal code as the traditional markets are getting the tax credit.

“I don’t know why but on the address passed on by the local government and the tax agency, Young Plaza was labeled as a traditional market,” a Lotte Card official said.

An official on the Jung District traditional market team said it has never registered Young Plaza as a traditional market.

Neither the Finance Ministry nor the National Tax Services have publicly disclosed the tax refund made on traditional market spending or its effect.

“We will work on improving the situation through cooperation with local governments,” a NTS official said.

BY LEE HO-JEONG [ojlee82@joognang.co.kr]