There are signs that the conflict between the flooring industry and the tax authorities, which has been going on for three years over country of origin standards for manufacturing plywood for flooring production, will continue. In the flooring industry it is argued that “if they face additional costs of tens of billions of won due to unfair tariff collection, small businesses are bound to fail.”
According to the flooring industry on the 27th, since the 2016 Korea-ASEAN Free Trade Agreement (FTA) tariff has been applied to plywood for the production of flooring, general tariffs (8-10%) for “88 tropical woods” specified in the tariff rate table, and ‘other tropical woods’ have been imposed. ‘Cooperative rate (5%) applies. After the entry into force of the ASEAN-Korea Free Trade Agreement, the flooring industry imported from Indonesia the plywood called “Meranti Down Lebar”, which is not included in the list of 88 tropical wood products, to be subject to customs duty.
At the end of 2019, the flooring industry received a piece of news like a bolt from the blue. This is because the Incheon Customs notified that Meranti down Levar species imported and used by the flooring industry is subject to general tariffs. The Incheon Customs determined that this tree species was identical to the tree species “Meranti Bakau” in the list of 88 tropical hardwoods. Therefore, the flooring companies that imported and used Meranti Down Lebar plywood notified that they would have to pay in addition the difference between the general customs duty and the conventional customs duty which had not been paid since the entry into force of the FTA Korea-ASEAN.
About 10 flooring companies were forced to face additional fees and 3 to 5 percent additional taxes overnight. According to the flooring industry, the five-year fee these companies will have to pay amounts to about 30 billion won. It is explained that some small businesses lacking financial resources are already going through the process of closure as they have to bear the burden of billions of won per company.
The flooring industry has devoted all efforts to prove that the tree species is not Meranti Bakau. As a result, in September 2020, the Indonesian government analyzed samples of 27 plywoods of the Meranti Down Lebar species for export to the country and issued an official position saying, “Meranti Bakau was not found in the sample.” The results were also handed over to the Ministry of Foreign Affairs, the Forest Service and the Customs Service of Korea. A pre-tax review was held in December of the same year and a new investigation was conducted. However, after completing their investigations, the tax authorities served the tax decision in June last year, stating that “the Meranti Down Lebar species is a tropical timber”.
Dissatisfied with this, the flooring industry has filed with the Tax Commission since September last year, and dozens of related trials are currently underway. According to the opinion statement of Incheon Customs obtained by the Korea Economic Daily, Incheon Customs states that “Meranti Down Lebar species belongs to the genus Shorea in the broad sense, and Shorea belongs to the tropical timber.” Also, “Meranti Down Lebar is the local name for ‘Dark Red Meranti’, one of 88 tropical timbers, and there have been cases in the industry where products of the Meranti Down Levar species have been marketed under the name Dark Red Meranti, so general taxation is reasonable to do” is the position.
On the other hand, the flooring industry said, “It is not in principle to classify species by specifying species by genus” and “when it was revealed that Meranti Daun Levar and Meranti Bakau are not the same species, they are doing a completely new and unreasonable claim.” there is.
The flooring industry expects the final outcome of the tax ruling to be released in the first half of next year. If the tax assessment request is rejected, it is the practice to move on to administrative litigation. Yoon Hyung-woon, director of the Korean Society of Wood Engineers, was concerned that “the flooring industry, which has already been pushed to the brink by rising raw material prices and high exchange rates due to a unfair taxation, could continue to close. “
An Incheon customs official said, “It is difficult to express our position on the issues currently under consideration.”
Reporter Min Kyung-jin min@hankyung.com
