Online retailers wary of tax on discount sales

Gmarket face 16.9 billion won in back taxes on underreported revenue


Online retailers are concerned about possible taxation on their discount sales after state auditors last week ordered Gmarket to pay 16.9 billion won ($15.12 million) in back taxes on underreported revenue.

The Board of Audit and Inspection judged on Thursday that the top online marketplace operator evaded value added taxes by excluding the discounted portion from its revenue over the past five years. The agency asked the National Tax Service to levy 16.9 billion won initially and investigate all other coupon sales, which may lead to taxation of up to 59 billion won.

It also decided to request that the NTS reprimand two tax officials for mishandling Gmarket’s sales record.

Gmarket hit back against the watchdog’s decision, saying that the accounting system the company uses had been approved by the tax authority.

“The amount that the watchdog asked the tax authorities to collect dates back to 2007, but the tax authorities had already approved our accounting system during their annual audit in November 2009,” a Gmarket official told The Korea Herald.

“I know that 11st Street (its competitor) pays VAT on sales excluding discount coupons, and a majority of online and offline retailers pay VAT on the final price after discount coupons like Gmarket,”  another source said.

Inspectors explain that there are different types of discount coupons and some should be subject to VAT.

“Some discount coupons that Gmarket offers, called item coupons, are offered only to particular products on promotions. But another customers type called Buyer coupons are being offered to virtually every customers and they should be subject to tax,” agency spokesman Song Yoon-geun told The Korea Herald.

But industry insiders have questioned the legitimacy of accumulated VAT imposed on Gmarket.

“Other major players in the industry also pay VAT on after-discount amount which has not been questioned throughout years of state audits. Does that mean all those companies are subject to penalty and overhaul in the accounting method?” an industry official said.

The Fair Trade Commission in July imposed fines on online retailer G-market for alleged anticompetitive practices and reported them to prosecutors for disrupting the probe.

The penalty came after the agency found evidence of Gmarket preventing sellers from dealing with competitor 11st.

The 250 million won penalty was for anticompetitive practices as well as for delaying authorities’ access to the building, which it used to delete computer files and hide documents

According to the FTC, Gmarket is a dominant player with more than 90.8 percent of shares in online open-markets. 
By Cynthia J. Kim (cynthiak@heraldcorp.com)