Local Governments Increase Gift Certificates, Attempts to Cash Out Surge
Illegal Operators Profiting from 10% Discounts Also Present
Regional Gift Certificate 'Kkang' Is Illegal for Consumers Under Current Law
Fines Up to 20 Million Won and Possible Police Investigation
[Asia Economy Reporter Song Seung-seop]"Anyone want to exchange 00 Love Gift Certificates with me?" Ms. Kim Jin-sook (46, pseudonym) recently posted on an online community that she would sell three regional gift certificates worth 100,000 won each for 90,000 won apiece. She had bought them for 89,000 won each through a secondhand trading app for travel purposes, but since her plans were canceled, she decided to transfer them. Although some members pointed out that gift certificate "kkang" (illegal cash conversion) is illegal, Ms. Kim responded indifferently, saying, "Then I will accept an exchange for department store gift certificates of the same price."
Mr. Sunwoo Hyung (54, pseudonym), who runs a store in a local government area in Gyeongnam, was caught by the local government while exchanging 34 million won worth of regional gift certificates at a financial institution under suspicious circumstances. The investigation revealed that the 34 million won was not sales proceeds but amounts gradually received from family and acquaintances. He attempted "kkang" by exploiting the fact that the certificates are issued at a 10% discount to face value to revitalize the local economy, but he was fined 5 million won and had his merchant registration canceled as an administrative penalty.
Despite crackdowns by government authorities, regional gift certificates issued by local governments are still being illegally circulated in small amounts. As related transactions have surged in financial and investment communities, local governments have even issued direct warnings. Since regional gift certificates are ultimately formed and circulated with taxes to revitalize the local economy, there are calls for drastic measures.
According to the industry on the 30th, a financial community with hundreds of thousands of members recently posted a notice stating, "Strict prohibition of transactions involving regional gift certificates, including Onnuri gift certificates." This was because members offering to sell regional gift certificates at a 10% discount sharply increased over the past few months, prompting verbal warnings from local governments. On other internet sites, more than 4,500 posts related to regional gift certificate transactions have been uploaded in a month, indicating active trading.
Trading regional gift certificates is illegal under current law. According to the "Act on the Promotion of Use of Local Love Gift Certificates," which came into effect in July last year, local merchants cannot request exchanges of regional gift certificates received without selling goods or providing services. Users are also prohibited from reselling gift certificates to others or requesting regional gift certificates from sales agents or merchants.
As Regional Gift Certificates Increase, Attempts to Cash Out Also Surge
Nevertheless, the dominant analysis is that the illegal circulation of gift certificates persists largely because regional gift certificates have been massively supplied like a trend. Local governments have distributed regional gift certificates as events or COVID-19 relief funds, leading to many small cash-out attempts among consumers. According to the Ministry of the Interior and Safety, sales of local love gift certificates reached about 15.1 trillion won as of August, a 176% increase compared to the same period last year. There are 226 basic local governments nationwide, and except for four, all issue their own gift certificates.
Illegal distributors mainly buy large quantities of widely supplied regional gift certificates by going door-to-door, then create ghost stores in local governments to cash them out. It is also common to resell them to local merchants for profit. Buying from consumers at a 10% discount price, they usually sell at 7-8% cheaper prices in secondary distribution, earning a 2-3% margin.
Gift certificate "kkang" not only contradicts the purpose of revitalizing the local economy but also results in a structure where the government compensates the discount difference with taxes, increasing national losses as illegal circulation intensifies. Considering the costs of producing and distributing gift certificates and exchange fees, which are substantial, there are calls for strict crackdowns on illegal circulation.
The Ministry of the Interior and Safety conducted a nationwide intensive crackdown on illegal circulation of regional gift certificates for 20 days starting last month. This was the second crackdown following one in March. Those involved in fraudulent circulation may face fines up to 20 million won and police investigations. If attempts are made to cash out national support funds received as gift certificates, full recovery measures may be enforced.
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