Slave to the blog: Death, taxes, thermonuclear war

October 3, 2012 6:45 AM

Ignoring the importuning of Grover Norquist, North Korea intends to crack down on tax avoidance at KIC according to multiple press reports. Operators in the complex are exempt from taxes for the first five years after reaching profitability, pay a reduced rate for the next three years, and pay at a 14 percent rate thereafter. As noted in an earlier post, a number of South Korean manufacturers have exhausted the holiday period and have now begun paying taxes. The North Koreans appear to believe that they are being cheated. Or as the South Korean Ministry of Unification delicately puts it “The North seems to have some doubts about those companies they didn’t gain from.” Or maybe they just see a good shakedown opportunity: according to Yonhap, they announced revised rules which stipulate that KIC firms caught for accounting fraud face a fine of up to 200 (!) times the money involved. (Maybe we should hire some of those North Korean tax collectors over at the SEC.) The South Korean firms have predictably submitted a letter of protest asserting that there is no gambling going on a Rick’s. Of course as our firm-level research demonstrates, South Korean firm profitability is strongly affected by direct and indirect public subsidies. One could interpret this as a transfer from South Korean taxpayers to the North Korean government.

In the meantime, South Korea has for the third time (this time we really, really mean it!) demanded payment of the $5.8 million due on food aid loans extended during the Sunshine era. As Yonhap observes, “Seoul has not used its rights to declare Pyongyang to be in default to the international community although it became entitled to do so after the North was silent for more than 30 days after the first reminder was sent on June 8.” And they say LMB is a tough guy. Sheesh.

Joking aside, with food security deteriorating in North Korea, one would hope that the government would want to clean up this irritant. Daily NK is reporting that food shortages now extend to some military units. I asked a South Korean colleague how he thought that the North Koreans might extricate themselves from the box that they seem to be getting into, he reported that his North Korean counterparts replied "sell minerals."  According to Chosun Ilbo, the gold sales have begun.

Meanwhile at the UN, Vice Foreign Minister Pak Kil Yon told the General Assembly that "Today, due to the continued US hostile policy towards the DPRK, the vicious cycle of confrontation and aggravation of tensions is an ongoing phenomenon on the Korean Peninsula, which has become the world's most dangerous hot spot and where a spark of fire could set off a thermonuclear war." Yadda yadda yadda.

And Generalissimo Francisco Franco is still dead.

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Marcus Noland Senior Research Staff

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