N. Korea hikes taxes at Gaeseong complex

North Korea is squeezing South Korean companies working at the joint Gaeseong Industrial Complex in the North with new taxes and a demand for more severance pay, officials said Thursday.

The move, which observers say is the North’s latest attempt to draw cash into its beleaguered economy, came after it unilaterally drew up a new tax plan in August.

“The North Korean side has imposed taxes including a corporate income and business taxes on some of the companies working at the Gaeseong Industrial Complex (GIC) in accordance with the new tax enforcement regulations,” the official said, requesting anonymity.

Between 10 and 20 firms were slapped with the new taxes, the official said. While it was not immediately clear how much they paid, one clothing company reportedly had to shell out $100,000. The unification ministry, which oversees cross-border projects, says the North’s revision of the regulations at the complex allows it to unilaterally determine tax rates. They also allow the regime to levy exorbitant fines for accounting irregularities.

The regime is also demanding that the firms provide severance packages to outgoing employees, even if they voluntarily quit, the official said.

Currently, firms are only required to provide severance if the employee is laid off after having worked at a company for over a year.

A result of the landmark inter-Korean summit in 2000 between the late President Kim Dae-jung and North Korean leader Kim Jong-il, tens of thousands of North Koreans work at about 120 South Korean firms at the complex.

Other sources said the firms operating there had protested the measures, which are hampering “normal corporate activities.”
Analysts said the moves reflected Pyongyang economic woes.

“Simply put, they need the cash,” Park Young-ho, an analyst with the Korea Institute for National Unification, said. “Despite increased economic cooperation with China, the regime is finding it harder to find outside resources from South Korea, and from its weapons proliferation.”

Watchers say the North’s lack of ability to bring in outside resources is causing rampant inflation. High prices caused by a lack of supply may be throwing a wrench in the regime’s plans to modernize its economy.

It remains to be seen what effect the new taxes will have in the zone. Park said that both Korea’s may attempt to warm ties after the new South Korean government takes power next year, and the GIC could be a logical barometer for cooperation. <The Korea Times/Kim Young-jin>