Underground Korean Malls Charge Illegal Fees For Card Payments

From Naver:

“Since It’s Cheap, Customers Should Pay Our Taxes!” Metro Shops’ Ridiculous Tax Evasion

Metro-Surtaxes-001.jpg

“Oh, Paying by card? W33,000, please.”

Last weekend, at Incheon’s Bupeong station, underground shopping mall patron Miss Park (23) found herself in a tussle with a shopkeeper. When asked the price, the store clerk said it was W30,000, but when he rang her up at the register, it came to W33,000. The clerk shot back with: “We’re stuck with additional taxes when cards are used, so what else can we do if you use a card to pay for W30,000 worth of clothing?”

Instances of rejecting credit card transaction fees are common at many underground shopping centers. Owners have realized when they sell low-priced goods at less than W10,000 there’s “nothing left to cover costs” so the consumer should pick up the extra cost when the sum is under W10,000. Customers thought it uncomfortable at first, but then decided it wasn’t a big deal.

To test this, we went out last weekend to the aforementioned Incheon Bupeong station shop as well as Seoul’s Jung-gak station and Gangnam station’s underground shopping malls. Here are our results: among the majority of businesses selling items like clothing, shoes, and bags, we first inquired to the salesperson about the suggested price and then the price when using a card. In most cases, they pushed for around 10% in additional fees. Some places even had signs openly saying “Additional Taxes Apply”. Consumers who never carry cash commonly try to negotiate deals like: “If I pay a portion of the price in cash, can you discount the surtax?” but these customers are usually directed to nearby ATMs to withdraw the cash needed for the full purchase.

In actuality, this is illegal. Last year, the introduction of a system to label the final pricing of products, without adding surtaxes, was hammered down. Big businesses are abiding by the system, but small, mom-n-pop stores have yet to comply.

“If you pay with a card, we have to declare our income and are left with nothing,” one shop owner complained to a customer. Miss Lee, 32, a fashion shopkeeper at Seoul’s Jung-gak underground mall said: “For the majority of cheap items I charge between W10,000 and W30,000, I don’t make a dime beyond the list price. In the case of direct retailers, it’s no wonder that business owners have to charge separate fees, or other similar things.” Sadly, that’s the way it has to be.

The National Tax Service also clearly sees this as illegal. Article 19 of the Credit Finance Business Act regulates against the unfavorable treatment of consumers regarding reasons for using or denying the use of credit cards for transactions, regardless of the size of business.

In most cases, customers don’t seem to mind and are already prone to forking out an additional 10% fee for cheap items sold in these underground shopping malls. Instances of these declared earnings reports coming under investigation is rare, so there has been little public attention to the issue. According to the Credit Finance Association, in only the first half of last year, cases of avoiding reporting earnings reports exceeded 2,000. In 2010 there were 3,567 cases, in 2011 4,095 cases, and in 2012 4,863 cases. Even though this shows a steady increase, crackdowns on these situations still prove to be difficult.

The National Tax Service officials have said: “When paying by card, these surtaxes should be included in the total but when the taxes are added separately to provoke cash payments it can harm reported income reports.” They said further: “If this continues, it can make figuring out one’s income difficult for the citizens of Korea.” This official further advised: “For mistreated consumers who first submit to us a written price estimate along with the price difference of cash vs. credit cards, we will impose fines as much as the price-difference to the shops.”

Comments From Naver:

qndh****

Such a clever trick! What? Cheap prices mean they can’t make any profit? That’s why I don’t wanna go to those underground shopping spots.

jypa****

This situation is a pity, but nevertheless certainly illegal. Reminds me of the owners of the Noryangjin cup rice stalls.

sung****

Gotta pay your taxes. If you’re in business, that’s the way it is. tsk tsk.

kyh6****

At places that discriminate between card and cash payments, I’m 100% positive they could lower their prices.

wind****

(Seoul’s) Jamsil station subway mall is infamous for this kinda thing…

korea-shoes-mall-underground

vice****

They purchase t-shirts cheaply at W1-2,000 and sell them for W20-30,000 apiece and then say there’s no profit? Jesus, how much do these weasels need to pocket? These guys are disgusting leeches.

best****

This official further advised: “For mistreated consumers who first submit to us a written price estimate along with the price difference of cash vs. credit cards, we will impose fines as much as the price-difference to the shops.” That’s your “advice”? You’re asking, not wholesalers, but regular joes to get a written price estimate from the shopkeepers and bring them in? Looks like the officials don’t wanna get off their asses. No will to actually improve this situation…tsk tsk..

cek4****

Business owners are lying if they say that there’s nothing left over for them at the end of the day. I also found myself in this kinda business. When selling handbags, we sold them at a 20x markup.

mk23****

Wait, are they saying they can demand compensation for the loss if you’ve already gotten a written estimate? Next time you’re out shopping, you can ask for the estimate. And they’ll be sure to tell you to fuck off.

kiki****

What’s with using your cards for only W30,000? Thanks to our cards, mindless impulse shoppers on the street have only increased.

miyu****

Don’t you think the street clothing shops are notorious for this? They whine like this while driving expensive cars and clutching their luxury bags…all the while not wanting to pay their taxes. kkk

cvx8****

If you’re not turning a profit, close up shop, and go back to work.

wogu****

In front of Busan University I found a knitted piece I liked at a clothing shop. When I went to buy it, it was W30,000, but when I paid by card it became W45,000…I was dumbfounded! Only when I told her I was ready to leave did the price drop to W35,000. What’s with these kinds of places?

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  • commander

    Although the if-you pay-in-cash-then discount prices- practice appear to be abnormal, it’s prevalent among small business.

    One of reason why this practice persists is retailers’ mistrust in tax regulators. Big firms employ tax lawyers to avoid taxation or use illegal accounting to evade tax. But small business owners and salaried workers have to pay taxes. They think it’s unfair.

    They think under the current tax law a total of small businesses contribute more to rax revenue while big firms take advantage of loopholes. This is the excuse small retailers make to justify their illegal transfer of taxation to consumers.

    Another reason comes from what small businesspeople think is high credit card fees.

    In contrast to giant retailers or big businesses, which have a relatively small charge rate for items they sell, small business owners complain that hig credit card fees are imposed on small business owners.

    Report has it that the volume of sales affect credi card fees, with big businesses with larger sale of goods than the small ones are charged smaller card fees. That’s the reason what those shopkeeper mark down prices when customers pay in cash.

    Illegal, but unlikely to addressed in the foreseeable future.

  • commander

    Plus, the government would know that one of the best ways to secure more tax revenue is to impose hefty fines on retailers who refuse to take credit cards or offer unfavorable prices to customers paying with the plastic.

    But they are also well aware that sich a move would definitely prompt huge backlashes from regular joes and janes, who would say “why doesnt the government impose higher corporate taxes for big firms?”

    The result: Big firms and small firms both fill out a fake tax return to authorities.

  • chucky3176

    Korea comes #1 in the OECD, in the ratio of underground economy to reported economy. Using cash and not reporting tax is the oldest trick in the book when it comes to tax evasion in Korea. Korea’s underground economy is estimated to be over 30%, while I’ve read some reports that the real ratio is even up to over 40% of the economy. Think about this ratio for a minute. If South Korea’s reported total GNP is $1.4 trillion, if you count all the unreported income, the real total GNP could be actually well over $2 trillion. Greece gets a bad rap when it comes to their people not paying their fare share of taxes, but I actually think South Korea beats Greece handily in this department. And I’m not just talking about the few corrupt rich who evade taxes or corporations getting special breaks, it’s all levels of the society who do this – from top to bottom. So far very little enforcement and meek punishment for those who are caught evading taxes meant that all kinds of tax evasion practices has become an endemic sickness.

    Nobody likes high taxes, but compared to most other OECD nations, Korea’s average tax rate is very low and there is a very large room to expand. But let’s crack down on the evaders first, because that’s where the big jackpot is. When a society demands high social services, effective tax collecting becomes crucial. Not only that, the government really needs to jack up the taxes to pay for all these social programs that are on agenda. The last thing the country wants to do is what Greece did – pay no taxes, but spend and rack up their deficits with borrowed foreign money, until they’re completely ruined.
    Unfortunately, having read and spoken to many Koreans over the years, very few Koreans have any ideal about the correlation between rising taxes and higher social spendings. They demand higher social welfares, but very few people are willing to pay them out of their own pockets. The government money magically grows on trees.

  • Mighty曹

    I’m a little torn over this. As a consumer I don’t want to pay tax and will go at length to avoid it. I would make my out of state online purchases based on a final price that includes shipping versus one within the state that includes tax. (Note: California has now made it a law to charge use tax on online purchases) The conscientious part of me know that I am hurting the state’s revenue by not paying tax. So I see the same effect this has when the merchants are not reporting and paying their tax to the government. Ultimately it hurts the people.

    The merchants should definitely disclose the additional charge and not surprise the customers. Common practice in Vegas now, advertise a room at a low rate (like $69) then charge a ‘Resort Fee’ between $25-$30. It may be disclosed in fine prints but at least you can make a decision, whether or not, to book the room.

  • detuned

    I always wonder why these stories come up every year or so. Seems like the news papers just recycle the story every once in awhile when it is a slow news day. To me it seems like a practice no one is really interested in stopping. It’s not like this is a secret and it is not just limited to small stores and small amounts. Almost every neighborhood convience store (not franchise like GS25), furiture store and even dentist does it.

    • chucky3176

      One reason maybe is because this is one of Park Guen Hye’s government initiative to crack down on tax cheats to increase the government’s coffers to pay for all her election campaign promises of more welfare for the everyone. She had to dial down her promises after she began running a huge budget deficit. She vowed not to increase taxes, instead find new money by going after tax cheats. But what she may end up doing is, hurt small businesses who rely on cheating taxes to supplement their income. It’s a catch 22 situation, since just about every small, large, medium business do this, and they will hurt and a big chunk of them may go out of business which hurts the economy, once the government starts cracking down too hard.

      • KCdude

        That means Korean megacompanies will slowly destroy small businesses and nobody can stop this. This awfully sounds like a dystopian novel but it’s getting there in reality.

  • David

    What a strange story to be so talked about on Naver.

  • d-_-b

    dear KoreanBang

    Please translate this article

    http://news.nate.com/view/20140215n02982

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