Firms blast FTA compensation fund

The government is under fire for its proposal to collect 1 trillion won ($856.4 million) from the corporate sector for a fund to support the primary industries like agriculture that are likely to suffer once the Korea-China free trade agreement comes into effect.

Many see it as a politically-motivated taxation that cannot be justified.

According to the Ministry of Strategy and Finance, and the Ministry of Trade, Industry and Energy, the controversial “collaborative cooperation fund” will be created by collecting 100 billion won a year for the next 10 years from private businesses, public corporations as well as the National Agricultural Cooperative Federation.

The fund is supposed to be managed by the Corporate Partnership Foundation to mainly support the children from agricultural families, to provide medical and cultural aid to the residents and more.

“Contributions to the fund will be strictly voluntary,” Kim Hak-do, a Trade Ministry official said. “We will give various tax incentives and other perks to encourage donations, but this has nothing to do with taxation”.

The fund was one of the conditions placed by the major opposition New Politics Alliance for Democracy for ratifying the Korea-China FTA bill, as part of its efforts to compensate people in the agricultural and fisheries sectors. According to Rep. Shin Jeung-hoon of the NPAD, the lowering or removal of tariffs under the FTA would inflict as much as 6.7 trillion won in damages to the domestic primary industries over the next 10 years.

However, the fund creation was widely panned by the corporate sector as a backdoor taxation.

Business tycoons -- who have already contributed billions of won to the burgeoning “fund for youth employment’’ set up by the Park Geun-hye administration less than 100 days ago -- have branded the scheme as a de facto tax.

“Once the government and politicians set their eyes on it, there is no way you can avoid the donation,” an employee for a large corporation was quoted as telling a local daily. “The fact that many companies that do not benefit from the FTA will have to chip in every year, makes us believe this is an extra burden,” he added.

It was revealed on Monday that the Federation of Korean Industries, the lobbying group of conglomerates, has verbally agreed to the fund creation, succumbing to political pressure without consulting its members in advance.

Some businessmen are concerned about the increasing number of backdoor taxes levied through “compulsory” donations. According to the Citizens’ Alliance against Populist Policies, the amount is estimated at around 18 trillion won this year, and expected to grow in the future.

“The authorities may attempt to create similar funds should South Korea join the Trans-Pacific Partnership. This will be an even bigger burden on companies,” another business insider said.

By Bae Ji-sook (baejisook@heraldcorp.com)