"Sanitary Pads Are Expensive Only in Korea"... The Real Reason Behind the High Prices Hidden Behind "Premiumization"

National Tax Service Launches Tax Audit on 17 "Essential Goods Price Gouging Tax Evaders"
"Unfair Practices Lead to Overcharging Consumers"
Suspected Tax Evasion Amounts to 400 Billion KRW

Sanitary product manufacturer D, which holds a monopoly and oligopoly in the domestic sanitary pad market, raised its prices by about 34%, citing "product premiumization." However, the National Tax Service believes that the price increase was due to D covering advertising expenses that should have been borne by its related-party distributor, and paying approximately 30 billion won in sales incentives, among other inflated costs. As a result, the National Tax Service has launched a rigorous tax investigation into the company for artificially inflating expenses to reduce profits from the price hike and evade taxes.

On January 27, the National Tax Service announced that it would conduct intensive tax investigations into "essential goods price gouging tax evaders" who drive up consumer prices through unfair practices and increase the burden on ordinary citizens. This is the agency's third price-related tax probe, following investigations into "industries closely tied to consumer prices" in September last year and "market disruption activities" in December.

Anduksoo, Director of the National Tax Service Investigation Bureau, is explaining about the 'Tax Investigation on Essential Goods Price Gouging Tax Evaders' at the Government Sejong Complex on the 27th. National Tax Service

Previously, in December of last year, President Lee Jaemyung criticized the high price of sanitary pads in Korea compared to overseas during a business report from the Fair Trade Commission and the Ministry of Gender Equality and Family. On January 20, at a cabinet meeting, he also instructed officials to "consider producing and providing free sanitary pads of basic quality."

Anduksoo, Director of the National Tax Service Investigation Bureau, stated, "Through analysis of reports from essential goods manufacturers and distribution transaction structures, we have confirmed that some companies are raising prices through various unfair practices." He emphasized, "These companies are abusing their dominant (monopoly or oligopoly) positions in the market or engaging in collusion to excessively increase the prices of essential goods, and are using irregular methods to evade their rightful tax obligations."

This investigation targets a total of 17 companies that increased the prices of daily necessities and evaded taxes: five monopoly or oligopoly companies involved in price-fixing, six manufacturers or distributors of essential goods that inflated costs, and six food distribution companies that disrupted fair trade practices. According to the National Tax Service, the total amount of suspected tax evasion by these companies is approximately 400 billion won.

The first group under investigation consists of manufacturers and sellers of daily necessities that abused their monopoly or oligopoly status and the essential nature of their products to raise prices. These companies inflated purchase prices by cross-buying raw materials from colluding firms at prices higher than market value, thereby increasing prices and reducing profits. They also excessively paid for the operation of their U.S. offices, unjustly supporting the living expenses of the owner's children residing in the United States.

Cases where related parties were excessively paid sales incentives, sales commissions, and service fees to reduce profits and inflated expenses to evade taxes. National Tax Service

In particular, one sanitary product company with an oligopolistic position marketed its price hikes as "product premiumization," selling sanitary pads domestically at prices tens of percent higher than in major overseas markets. This company covered advertising expenses that should have been paid by a related-party corporation and, without any particular reason, paid 5 billion won in sales commissions-double the industry average-causing product prices to rise. It also paid 50 billion won in profits from the price increase to the related-party corporation.

Manufacturers and distributors of other daily necessities such as eyeglasses and wet wipes, who raised prices under the pretext of non-existent cost increases, are also under investigation. These companies claimed, "There was no other choice due to rising raw material prices caused by inflation and a strong dollar," but in reality, they inserted non-existent related-party corporations into transactions or fabricated service contracts to inflate costs. They also provided luxury apartments worth about 2 billion won, purchased with corporate funds, to the owner's children free of charge, and used corporate credit cards for personal luxury and entertainment expenses at golf courses and nightclubs, among others, thereby misappropriating corporate assets.

The National Tax Service also plans to investigate food distribution companies that created complex transaction structures to siphon off profits, increase distribution costs, and unfairly raise prices. According to the agency, one deep-sea fishing company inserted a single-person related-party corporation controlled by the owner's family into transactions to divert profits to the family. The company also disguised overseas remittances of about 5 billion won as deep-sea fishing operating expenses, but in reality, these funds were used for the owner's children's overseas education and other personal expenses.

Director An stated, "Through this tax investigation, we will thoroughly scrutinize companies that abuse their dominant market positions or engage in unfair practices such as price-fixing to excessively raise the prices of daily necessities and evade taxes they are obligated to pay." He added, "If we uncover tax evasion or the issuance of false tax invoices during the investigation, we will take strict action and pursue criminal prosecution under the Punishment of Tax Offenses Act."