Pyongyang considers reinstating its tax system

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Pyongyang considers reinstating its tax system

North Korean leader Kim Jong-un is pushing for a plan to officially introduce a tax system for the first time in 42 years. The Communist state has not had a such a system since 1974, when it was abolished by the Supreme People’s Assembly.

According to a source familiar with the situation inside North Korea, Pyongyang is preparing to revive the tax system ahead of the ruling Workers’ Party convention in May in response to decreasing national finances, squeezed by sanctions from the international community.

After North Korea conducted its fourth nuclear test on Jan. 6 and subsequent long-range missile launch on Feb. 7, the United Nations Security Council unanimously adopted the toughest sanctions to date in an attempt to curb cash from flowing into North Korea.

“The central government will grant economic autonomy to local merchants, in exchange for collecting bills for utilizing land, water and electricity,” the source said.

He added that the North will expand the number of private merchants and the North’s private markets, jangmadang, and officially levy taxes on usage for factories and companies.

Under the new tax system, North Korea will collect individual income tax from the emerging donju, a term assigned to the country’s nouveau riche that literally means “master of money,” who have amassed sizable wealth through the private market.

The individual income tax rate has not yet been decided, though it is likely that it will be higher than the last 1.8 percent tax rate from 1974, particularly considering the rise in merchants.

The push for a tax system was Kim Jong-un’s idea, according to experts on North Korea, who said the young leader felt uneasy about the fact that his country didn’t have a tax system when he took power.

North Korea’s abolishment of taxes in 1974 was largely a propaganda move, intended to demonstrate the country’s superiority over other nations. However, although the country did not officially have a tax system, the impoverished state still collected a number of fees from its people in place of corporate and value-added taxes.

“North Korean professors at Kim Il-sung University and other experts have recently been studying the state’s tax system,” said Lim Eul-chul, a professor of North Korean studies at Kyungnam University. “North Korea will use the term ‘usage fee’ rather than ‘tax’ as it sees the tax system as a vestige of capitalism.”

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