[The Editors' Verdict] Out-of-Control Prices: Can a Tax Audit Rein Them In?

Last Month's Chicken Price Increase at BBQ
National Tax Service Launches Special Tax Investigation
Food Industry Faces Price Increase Postponement Threats

Domestic chicken franchise Genesis BBQ Group is reportedly undergoing a tax audit by the National Tax Service (NTS) on suspicion of tax evasion. It is said that the Investigation Division 4 of the Seoul Regional Tax Office, which handles irregular special tax audits, has taken charge. The reason why the NTS suddenly started scrutinizing Genesis BBQ for tax evasion is unknown. However, as news broke that investigators from Division 4 visited Genesis BBQ’s headquarters in Songpa-gu, Seoul, earlier this month to secure tax-related documents, there is speculation that this is linked to Genesis BBQ’s recent price increase of major chicken products last month. The NTS has so far remained silent about individual tax audits.

Genesis BBQ’s price hike came shortly after the Ministry of Agriculture, Food and Rural Affairs called the franchise industry and requested cooperation to refrain from raising prices. At that time, the ministry held a meeting with franchise industry representatives along with officials from the Fair Trade Commission, asking for cooperation in stabilizing prices and requesting that the government be notified in advance before any product price increases. It was also mentioned that if price increase plans were reported beforehand, incentives such as tariff reductions on imported raw materials might be considered. Franchise industry participants at the meeting expressed dissatisfaction, saying, "Being asked to report price increase plans is essentially a threat not to raise prices."

On April 22, Genesis BBQ announced that it would raise the recommended retail prices of 23 products by an average of 6.3% starting the next day (May 23), but postponed the increase twice, with the actual price hike taking place on May 4. It is reported that the government requested a postponement of the price increase. Because of this, the current special tax audit on Genesis BBQ is interpreted as a 'punishment' for the chicken price hike.

The government reportedly held another franchise industry meeting after Genesis BBQ announced the price increase. Industry representatives were summoned twice within a month. On the previous day, Han Hoon, Vice Minister of Agriculture, Food and Rural Affairs, held a meeting to review processed food and dining-out prices with key food and restaurant industry officials, requesting, "The food and dining-out industries should participate in maintaining price stability in the second half of this year through cost reduction and discount events." He especially emphasized cooperation by saying, "If there are factors causing price increases or decreases, please reflect them in prices at a level that consumers can accept," citing the recent stabilization of international food raw material prices.

Flour and oils, which surged last year, have stabilized this year. On the other hand, prices of other raw materials such as sugar and cocoa have risen sharply. Above all, the won-dollar exchange rate soared to the 1,400 won range this year, increasing costs when importing raw materials. Even without rhetoric about rising electricity bills and labor costs that the food industry cites as reasons for product price increases, there may be unavoidable factors necessitating price hikes. Nevertheless, the government has not presented structural measures to stabilize prices such as exchange rate stabilization, instead repeatedly making 'showy' requests for cooperation.

The news of the tax audit on BBQ could serve as a warning to the food and dining-out industries regarding price increases. Just as the Fair Trade Commission’s investigation into collusion in the food industry last year led to the withdrawal of price hikes, food companies may temporarily refrain from raising prices this time as well. However, since the parliamentary general election in April, product prices have been rising again one after another. Measures that twist arms in ways that do not align with market economy principles cannot be a solution to controlling prices.