Annual Tax Revenue Could Reach 500 Billion Won If Aliexpress and Temu Direct Purchases Are Taxed

Korean Consumers Spent 1.4 Trillion Won on Direct Purchases from China in Q3
Majority of Transactions Made Through Low-Cost Platforms Like Aliexpress and Temu

Last year, the number of overseas direct purchases made by Korean consumers surpassed 180 million transactions. If the government imposes value-added tax (VAT) on small-scale direct purchases, it is estimated that approximately 500 billion won in annual tax revenue could be secured. Currently, South Korea operates a small-sum tax exemption system that waives customs duties and VAT on imported goods valued at 150 dollars or less (200 dollars or less for items shipped from the United States).

According to relevant ministries on November 18, the Ministry of Economy and Finance estimates that applying VAT to small-scale direct purchases could yield about 500 billion won in additional VAT revenue. While the government believes it will take time to fully implement taxation on small-scale direct purchases, it is currently preparing the necessary systems and regulations to allow overseas platforms such as Aliexpress and Temu to collect VAT from sellers and remit it to the Korea Customs Service.

According to data submitted by Assemblyman Cho Seungrae of the Democratic Party of Korea, last year’s overseas direct purchases reached a record high of 181.18 million transactions (approximately 8.516 trillion won). Of these, “list clearance” transactions, which are exempt from customs duties and VAT, accounted for 139.91 million transactions, or 77.2% of the total. In terms of value, 3.446 billion dollars (5.7781 trillion won), representing more than half (57.4%) of the total, were also exempt from taxation. This means the majority of direct purchases are outside the scope of taxation.

In particular, ultra-low-priced Chinese products sold through Aliexpress and Temu are dominating the market. According to the National Data Agency, in the third quarter of this year, Korean consumers’ overseas direct purchases amounted to 2.1224 trillion won, a 9.2% increase from the same period last year. By region, China led with 1.4141 trillion won, far surpassing the United States (347.9 billion won) and Japan (150.3 billion won). The agency noted that direct purchases through low-cost distribution platforms such as Aliexpress and Temu account for a significant portion. Purchases from China increased by 19.9% compared to the same period last year.

Within the government, there have been discussions about adjusting the tax exemption threshold and prioritizing the imposition of VAT on ultra-low-priced goods. While customs duties involve different rates by product category and thus require complex administrative procedures, VAT can be uniformly applied at 10% to all goods, making it more administratively efficient. However, swift implementation is difficult due to inevitable backlash over increased consumer burden. Last year, the government, led by the Office for Government Policy Coordination, suggested reforming the tax exemption system to prohibit direct purchases of products without KC certification, but the plan was effectively scrapped due to public opposition.

Internationally, it has become common to reduce or abolish small-sum direct purchase tax exemption systems. Since August, the Donald Trump administration in the United States has decided to abolish the “de minimis exemption system,” which exempted shipments valued at 800 dollars (about 1,172,320 won) or less from customs duties. The European Union has been imposing VAT on all e-commerce imports since July 2021. The previous exemption for goods valued at less than 22 euros (about 37,361 won) was eliminated, and as of this year, the customs duty exemption for low-value parcels under 150 euros (about 254,737 won) has also been fully abolished.