[Insight & Opinion] Rapidly Growing Resell Market... Protective Measures Needed

[Asia Economy] Resell is an economic activity familiar in our daily lives. It has rapidly grown recently due to the expansion of internet platforms, and high profits through resell have occurred in various areas such as sneakers, luxury goods, and concert tickets, increasing public interest. For example, tickets for the famous American singer Taylor Swift's New Jersey concert scheduled for May next year soared to over $20,000.

StockX, a representative resell platform in the United States, was visited by as many as 200 million people in 2020, with $1.8 billion worth of goods traded annually. It currently provides services in more than 200 countries worldwide and entered the domestic market last year.

Resell can benefit the environmental ecosystem and promote sales for companies, but in some cases, it can cause harmful effects by triggering collecting desires or speculative demand. Those seeking profits through resell are not interested in the true value of the goods or services or the utility they will enjoy but purchase solely based on the possibility of reselling to someone else at a higher price. When speculative demand floods in, bubbles can form, causing prices to skyrocket exponentially. Ultimately, someone suffers losses by making unwanted purchases. If tickets are bought solely for resell purposes and cannot be resold before the performance, the buyer may incur a total loss.

While the resell market has grown considerably, government management systems for consumer protection, such as prohibiting market disruption and unfair trade, seem insufficient. In contrast, the auction market, which has been institutionalized for a long time, prohibits unfair practices. For example, in early online auctions, it was common to artificially raise prices by submitting false bids with multiple IDs on items one was selling, but this is now prohibited. Exaggerated or false advertising about traded goods is also illegal. Such protective measures should be introduced into platform resell markets as well.

There is also a need to establish tax systems for those earning profits through professional reselling. In the United States, such tax systems have been established in recent years, imposing income tax in the form of individual business income. Some consumers may feel uncomfortable with taxing small profits from simple secondhand sales, but this can be protected through appropriate income deductions. On the other hand, introducing tax systems has the advantage of enabling compensation such as cost processing for losses that may occur in the resell market.

Management and institutionalization of the resell market also seem urgent in virtual asset markets such as non-fungible tokens (NFTs). While some purchase NFTs for their own utility, most are investment tools through resell. Although controversial, taxation on investment income from virtual asset transactions may be implemented in the future through financial investment income tax systems.

However, the government should pay attention to the fact that the resell market could be abused as a means to evade inheritance tax, as well as the harms caused by excessive investment fever. For example, if expensive NFTs are purchased and resold at low prices to children or others through the resell market, this is effectively inheritance, but under the current system, there is practically no way to impose inheritance tax.

If well utilized, the resell market has many advantages that can invigorate economic activities of consumers and companies. However, there is considerable potential for harm caused by speculative demand or abuse as an inheritance tax evasion method. Relevant authorities should carefully examine these points and take the lead in institutionalizing the rapidly growing resell market.

Kim Gyu-il, Professor at Michigan State University