Despite the 'Corona Shock,' Duty-Free Shops Set to Pay 50 Billion Won in License Fees This Year

No Revision of Ministry of Economy and Finance Enforcement Rules Despite Passage Last Year
Patent Fee Payment Scheduled Next Month

Sales Decline Due to COVID-19 Recession
Patent Fees Also Decrease
Determined No Need for Fee Reduction Measures

[Sejong=Asia Economy Reporters Kim Hyun-jung, Lee Hyun-joo] The duty-free shop industry, hit hard by COVID-19, is now faced with an additional burden of paying patent fees amounting to 50 billion KRW. Although the National Assembly amended the Customs Act to allow for a reduction of patent fees in disaster situations, the government responsible for implementing this has not yet prepared the enforcement regulations, resulting in this issue.

According to the National Assembly and the Ministry of Economy and Finance on the 19th, the amended Customs Act (Article 176-2-4), revised last December, stipulates that if bonded sales outlets suffer significant damage due to a national disaster, related patent fees can be reduced. This bill was originally proposed to support the duty-free shop industry struggling due to COVID-19.

However, despite the law’s passage, the amount of patent fees to be paid by companies next month remains unchanged. This is because the Ministry of Economy and Finance has not prepared follow-up measures on how to reduce the patent fees. Patent fees are confirmed by the Ministry in March based on the previous year’s sales. The rate ranges from about 0.1% to 0.5% depending on sales. Until 2016, the rate was 0.05% of sales, but after the 2017 revision of the Customs Act enforcement regulations, the rate increased to between 0.1% and 1%. When the duty-free industry’s sales hit a record high of 24.8586 trillion KRW in 2019, the top three companies?Lotte, Shilla, and Shinsegae?paid about 73 billion KRW in patent fees.

On May 18 last year, the duty-free shop at Terminal 1 of Incheon International Airport was deserted due to the impact of the novel coronavirus disease (COVID-19). Photo by Mun Ho-nam munonam@

This year, the duty-free industry is effectively facing an existential crisis due to COVID-19. Nevertheless, the Ministry of Economy and Finance appears to have judged that since patent fees will decrease in proportion to the drop in sales, no additional reduction measures are necessary. At the full meeting of the National Assembly’s Finance and Economy Committee on the 16th, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki responded to a query from Assemblyman Ko Yong-jin of the Democratic Party, who requested related measures, by saying, "The National Assembly amended the law last time to provide the basis. You might expect follow-up measures, but they are not included this time," and explained, "The law only opened the door to allow fee reductions, and this time, it was judged that patent fees have significantly decreased due to the drop in sales."

According to the Korea Duty Free Shop Association, last year’s duty-free sales are expected to fall sharply by 37.6% compared to the previous year (2019), reaching only 15.5052 trillion KRW. Since the remaining sales were structured to leave only minimal profits to maintain business relationships with each brand, an operating loss of around 500 billion KRW is anticipated. An industry insider explained, "Last year’s operations were at the level of clearing out inventory, not a structure that could generate profits through sales." Another insider expressed concern, saying, "Since patent fees have a quasi-tax nature rather than being a simple fee, reductions are essential," and added, "Even large corporations are considering scaling down their duty-free businesses, and some companies are delaying store openings to hold on." The total patent fees to be paid by the entire duty-free industry are expected to be around 50 billion KRW. A Ministry of Economy and Finance official said, "We are currently reviewing the preparation of enforcement regulations, but nothing has been decided." If the Ministry does not prepare separate enforcement regulations, each duty-free shop will have to pay patent fees based on the existing rates by the end of next month.