Duty-free market may see major changes soon

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Duty-free market may see major changes soon

Published: 11 Mar. 2016, 20:29

The government may expedite major changes in the local duty-free market, only four months after a huge controversy erupted when the lucrative licenses were awarded.

The changes involve issuing additional licenses, extending existing licenses and lowering payments for licenses.

“As the controversy surrounding the duty-free business regulations continues to grow and demands [from the industry] for changes are rising, we are planning to come up with an improvement plan by the end of this month,” a high-ranking Finance Ministry official said, requesting anonymity.

This is a significant change in the government’s previous timetable. The government was expected to announce measures concerning duty-free regulations in the second half of the year and had scheduled a public hearing on March 16.

However, rumors of urgent changes have been building up recently.

“There have been continuous debates over tighter government regulations on the duty-free industry since they announced the new operators that received the license, and those that lost it, on Nov. 14 last year,” said Sung Joon-won, an analyst at Shinhan Investment. “But there seemed to be changes in the atmosphere of loosening the regulations this month.”

The biggest issue is whether the government will give out additional licenses, four months after it announced its decision. If more licenses are issued, the industry’s eyes will be focused on whether the government will approve Lotte’s World Tower duty-free business that had its license revoked in November.

The government may also extend the duration of current duty-free operation licenses, from the current five years to 10 years. The license renewal was previously set at 10 years but changed to five years in 2013.

Another matter being discussed is lowering license payments that duty-free operators pay the government. Currently, the license payment rate for conglomerates is set at 0.05 percent of revenue earned. The government was considering raising that rate to 5 percent, but the rate is now expected to be lowered to 1 percent.

“Those who will benefit most from the changes are expected to be major operators like Shilla and Lotte, which have the largest market share,” said Lee Seung-eun, an analyst at BNK Securities.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]