Ministry mulls duty-free rules

The government is considering tightening regulations on the nation’s duty-free shops, including increasing taxes on the stores tenfold or excluding conglomerates from maintaining a dominant hold on the duty-free market.

A public hearing on the nation’s duty-free businesses took place Thursday. Though it was officially hosted by the state-run Korea Institute for International Economic Policy, the event was planned by the Ministry of Strategy and Finance.

The ministry said it would reflect on the ideas proposed at the hearing and outline new regulations by December this year.

The hearing came as the operators of the nation’s three duty-free shops - Lotte Duty Free Shop’s Sogong and Jamsil branches in Seoul and SK Walkerhill Duty Free - are faced with the expiration of their government contracts, which grant them exclusive right to operate, in December.

Choe Nak-gyun, a researcher from the institute, proposed to increase taxes on the revenue of duty-free shops tenfold at the hearings. The current tax rate is 0.05 percent.

Duty-free operators in Seoul made a total of 8.3 trillion won in revenue in 2014 in Korea, but paid only about 4 billion won in commissions, Choe said.

Imposing commissions proportional to each operator’s revenue could also be effective, Choe said, adding that such a plan could bring in up to 49.2 billion won extra in commissions per year.

Otherwise, the government can simply open up the bid, selecting the company willing to pay the highest commission. The government could also use a mixture of different regulations, he said.

“If we open up the bidding, the government could maximize earnings from commissions,” said Choe. “But this way could give an unfair advantage to the biggest companies.”

Other participants proposed various measures to mitigate monopolies in the duty-free market. They said restrictions should be placed on conglomerates who already control a majority of the duty-free sector. If these measures are adopted, Lotte Duty Free would take a hit, as it accounted for 50.1 percent of the market as of this July.

Still, authorities said they haven’t decided yet on a direction for their regulations.

“Operators of the three duty-free shops could be exempted from the new law, or required to pay more commissions under the new rules,” a Finance Ministry official said. “We will make a decision based on public opinion.”

Finance Minister Choi Kyung-hwan, meanwhile, said he would launch more “mini-duty free shops” in the country, just like those in Japan.

At a parliamentary hearing Thursday, Choi said he would “actively review” the possibility of the stores, which are smaller in size and geared towards offering foreign travelers tax refunds on the premises.

BY KIM WON-BAE, KIM HEE-JIN [kim.heejin@joogang.co.kr]