[Weekly Review] Fair Trade Commission Draws Sword at Kakao... Lowest Number of CEOs with Employees in 31 Years

Kim Beom-su, Chairman of Kakao

[Sejong=Asia Economy Reporter Son Seonhee] The Fair Trade Commission has taken action against an online platform company that sparked controversy over infringement on local businesses. It conducted an investigation into discriminatory dispatch calls against Kakao Mobility, which operates 'KakaoT,' and has initiated sanction procedures against Chairman Kim Beom-su, the founder and same person (head) of Kakao. He is suspected of failing to properly report materials related to K Cube Holdings, which is effectively Kakao's holding company.

◆ Fair Trade Commission likely to announce sanctions on Kakao within the year = The Fair Trade Commission's secretariat recently conducted an on-site investigation at the headquarters of Kakao and K Cube Holdings. K Cube Holdings is effectively a holding company at the top of Kakao's governance structure, with Chairman Kim owning 100% of its shares. It consists of seven executives and employees, most of whom are family members of Chairman Kim. Kim Hwa-young, Kim's younger brother, served as CEO but left last year after receiving a large retirement payment of 1.4 billion KRW. Currently, Kim's wife Hyung Mi-sun, son Kim Sang-bin, and daughter Kim Ye-bin are all employed there.

The Fair Trade Commission is also reportedly examining whether K Cube Holdings, classified as a 'financial investment business,' violates the separation of financial and industrial capital regulations by controlling Kakao, a non-financial company. Under current Fair Trade Act provisions, financial and insurance companies within a conglomerate are prohibited from exercising voting rights in non-financial and non-insurance companies they hold shares in, in accordance with the principle of separation of finance and industry.

The Fair Trade Commission plans to decide on sanctions against Kakao and Chairman Kim as early as within this year.

◆ Direct hit from COVID-19... 'Bosses with employees' at lowest in 31 years = The prolonged COVID-19 pandemic is pushing self-employed individuals to their limits. According to the 'August Employment Trends' recently released by Statistics Korea, the number of self-employed people with employees last month was 1,301,000, marking the lowest level for August in 31 years since 1990.

The total number of employed persons was 27,603,000, an increase of 518,000 compared to the same month last year. The employment rate (age 15 and over) also rose by 0.8 percentage points to 61.2%. Unlike last year, the impact of the fourth wave of COVID-19 on the overall labor market has been quite limited, but the shock is concentrated on self-employed individuals in face-to-face service sectors such as food and accommodation. Employment in wholesale and retail trade decreased by 113,000, the largest drop among all sectors, and employment in accommodation and food services also fell by 38,000.

This employment trend survey was conducted after the fourth wave of COVID-19 began in early July, during which the highest level 4 social distancing measures were implemented in the metropolitan area and level 3 measures were applied in non-metropolitan regions, resulting in strong quarantine measures. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated, "Since the quarantine situation remains difficult in September, we will monitor it closely."

◆ Over 200 billion KRW in comprehensive real estate tax arrears... Half of which is in Seoul = Last year, the amount of overdue comprehensive real estate tax (종부세, Jongbu-se) reached 200 billion KRW. The arrears in Seoul, where high-priced housing is concentrated, exceeded 100 billion KRW, accounting for more than half.

According to data recently submitted by the National Tax Service to the office of Yang Kyung-sook, a member of the National Assembly's Planning and Finance Committee from the Democratic Party, the number of overdue Jongbu-se cases last year was 58,063, with an amount of 198.4 billion KRW.

The number of overdue cases increased from 63,387 in 2018 to 66,220 in 2019, then decreased to the 50,000 range last year. However, the amount of arrears rose from 126.1 billion KRW in 2018 and 181.4 billion KRW in 2019 to 198.4 billion KRW in 2020. This is analyzed as an effect of a sharp increase in the amount of Jongbu-se overdue per case.

By local tax office jurisdiction, Seoul Regional Tax Office had the highest arrears with 25,942 cases and 119.8 billion KRW, accounting for 44.7% of cases and 60.4% of the amount nationwide. The arrears amount under Seoul's jurisdiction increased from 59 billion KRW in 2018 to 98.1 billion KRW in 2019, surpassing 100 billion KRW for the first time last year.

Following Seoul were the Central Regional Tax Office covering Gyeonggi Province (12,904 cases, 30.2 billion KRW), Busan Regional Tax Office (5,575 cases, 13.5 billion KRW), and Incheon Regional Tax Office (6,067 cases, 13.2 billion KRW) in terms of arrears amount.