‘Gosari’ Importers Caught Exploiting VAT Exemption

An importer who exploited regulations allowing exemption from value-added tax (VAT) when importing bracken fern was caught by customs authorities for obtaining undue profits.

On the 25th, the Korea Customs Service Incheon Customs announced that it had detected importers who imported Chinese “boiled” bracken fern packaged for retail, falsely declaring it as “blanched” bracken fern to wrongfully receive VAT exemption.

Recently, the government amended the Enforcement Rules of the Value-Added Tax Act to temporarily exempt VAT on “retail-packaged blanched vegetables” in order to stabilize living costs.

Chinese bracken fern attempting to clear customs by abusing the value-added tax exemption regulation. Provided by Incheon Customs

The VAT exemption was originally implemented from July 1, 2022, and extended from the end of last year to the end of this year. Before the amendment of the enforcement rules, blanched vegetables were subject to VAT when imported in retail packaging. VAT was imposed on all retail-packaged vegetables regardless of whether they were blanched or boiled.

However, after the amendment, VAT exemption was limited to retail-packaged bracken fern that was blanched.

“Blanching” is a heat treatment process that inactivates enzymes to prevent changes in color, flavor, and nutritional value during food storage, and since it does not alter the nature of the food, it is eligible for tax exemption. On the other hand, “boiling” involves prolonged heat treatment that changes the nature of the food, thus subject to taxation, according to customs authorities.

The detected importers exploited these regulations (regarding tax exemption eligibility) by declaring retail-packaged boiled bracken fern as blanched bracken fern to receive VAT exemption.

Incheon Customs collected samples from the shipments declared as blanched bracken fern and requested analysis from the Central Customs Laboratory. The response confirmed that “the process of re-heating dried bracken fern with hot water” softens the tough texture of the bracken fern and changes its nature to make it suitable for consumption.

Accordingly, Incheon Customs conducted a post-review and imposed VAT of 1.3 billion KRW on importers for 8,942 tons of goods that had been wrongfully exempted, and required taxation reporting for 1,057 tons of goods scheduled for import clearance through pre-review.

An official from Incheon Customs stated, “We will strengthen pre-import analysis and post-review for items where taxability may be controversial, such as ‘blanched vegetables’ among ‘unprocessed foodstuffs’ exempt from VAT, to fundamentally prevent VAT evasion.”