[Exclusive] '8 Million Won → 400 Thousand Won' Underreported... Alcohol Customs Evasion Surges 30 Times in 5 Years

This Year’s Liquor Tariff Evasion Amount Up 136.7% YoY
Increase in Abuse Cases of Simplified Customs Clearance for Overseas Direct Purchase
Methods Include Lowering Purchase Price or Falsifying Origin

#1. Importer A was caught by customs authorities in May for smuggling wine without declaration. Investigations revealed that from March 2013 to November 2021, he smuggled 150 bottles of wine (worth approximately 280 million KRW) through international mail or travelers' carry-on items, disguising them as other goods such as beverages. Notably, A stored rare-value wines in a secret warehouse and held paid tasting events targeting high-income groups such as doctors and lawyers, who were recruited as paid members for about 1 million KRW per month, or sold the wines at his own wine bar.

#2. Importers B and C were also handed over to the prosecution for evading customs duties by abusing the overseas direct purchase system. They reported wine prices, which could be as high as 8 million KRW per bottle, at about 1/20th of the price, 400,000 KRW, to evade customs and liquor taxes. From June 2019 to May last year, B imported 7,958 bottles and C imported 1,850 bottles of wine for sale, disguising them as personal use items. Customs authorities estimated that the taxes evaded by A amounted to about 1.3 billion KRW, and by B about 140 million KRW.

The amount of customs duty evasion by domestic liquor importers has surged about 30 times over the past five years.

According to data submitted by the Korea Customs Service to Im Kwang-hyun, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, the amount of liquor customs duty evasion this year reached 6.34 billion KRW as of October. This is a 136.7% increase (3.663 billion KRW) compared to last year's 2.678 billion KRW.

The amount of liquor customs duty evasion, which was about 278 million KRW in 2020, increased to 460 million KRW the following year, decreased to 192 million KRW in 2022, but rose again last year and more than doubled this year compared to the previous year. The number of cases detected this year was five, compared to seven last year, indicating that the scale of tax evasion per case has increased.

The sharp increase in liquor customs duty evasion is due to the rise in illegal import attempts that exploit the advantages of the 'overseas direct purchase simplified customs clearance system' to evade import requirements. This system allows exemption from import declaration, customs duties, and VAT for personal use items valued at under 150 USD.

Importers B and C, caught by customs, also abused this system to evade hundreds of millions of KRW in taxes. The Korea Customs Service has reportedly significantly strengthened related crackdowns since last year, as cases abusing the overseas direct purchase simplified customs clearance system have been on the rise. This year, too, during Black Friday and Guanggunje, they conducted focused crackdowns on smuggling activities abusing this system.

Liquor customs duty evasion is also carried out by disguising liquor products as general beverages, submitting false receipts with lowered product prices to customs, or forging certificates of origin to claim import from free trade agreement (FTA) countries with duty exemptions, as in the case of A. Recently, importers have become more sophisticated, dispersing imports under the names of family or friends to avoid detection, as repeated imports under one’s own name are more likely to be caught by customs.

This investigation did not separately manage customs duty evasion by liquor type, so it is unclear which types are most affected. However, only two cases, including A’s case detected by customs in May this year, involved evasion targeting fruit wines such as wine. The rest are believed to mainly involve high-alcohol liquors like whiskey, which have relatively higher customs and liquor tax rates, and liquors from countries without FTAs. Currently, under customs law, the customs duty rate for fruit wines like wine is about 15%, while whiskey and vodka are 20%, and soju and gaoliang liquor are 30%.

In particular, distilled spirits have a liquor tax rate of 72%, higher than fermented beverages like wine at 30%, so evading or reducing customs duties can also reduce the burden of liquor taxes, which are calculated based on the product price plus customs duties, thereby increasing illegal profits. Changing the origin to an FTA country where customs duties are exempted is also a method used to avoid customs duties ranging from 8% to 30%. For example, UK whiskey’s customs duty rate dropped from 30% to 0% under the Korea-UK FTA signed just before Brexit.

The domestic liquor market, which peaked in 2022 amid the home drinking and solo drinking trend during the COVID-19 pandemic, has somewhat slowed down, and the steady rise in the won-dollar exchange rate, which lowers the value of the Korean won, may act as an additional incentive for tax evasion in the future. For wine, the largest segment, import volume decreased from 581.28 million USD (about 823 billion KRW) in 2022 to 506.02 million USD last year, and as of October this year, it shrank further to 385.82 million USD (about 545 billion KRW), a 9.6% decrease compared to the same period last year (426.81 million USD).

The situation is similar for whiskey. The declared import amount was 266.84 million USD (about 380 billion KRW) in 2022 but decreased to 201.88 million USD (about 290 billion KRW) this year, an 8.7% decrease compared to the same period last year (221.10 million USD).