Business Closure Small Business Owners to Receive Loss Compensation from July... Simple Revenue Decrease Excluded

Legislation of "Loss Compensation" Phrase... Interest in Enforcement Decree Detailing Eligibility and Criteria

On the 19th, the fashion town shopping district in Dongdaemun-gu, Seoul, which has been experiencing a recession due to the prolonged impact of COVID-19, showed a quiet scene. Due to the effects of COVID-19, the Dongdaemun shopping district, symbolized by fashion accessories, is also becoming vacant. According to the Shopping Mall Information Research Institute, the vacancy rate of medium to large-sized stores in the Dongdaemun commercial area was 10.8% in the second quarter of last year. The vacancy rate in the Dongdaemun commercial area has been continuously rising since the second quarter. Photo by Kim Hyunmin kimhyun81@

[Sejong=Asia Economy Reporter Moon Chaeseok] Starting as early as July, small business owners who suffered losses due to quarantine measures aimed at preventing the spread of infectious diseases like COVID-19 will receive compensation from the government according to the law. This is not a discretionary payment by the government but a legally mandated obligation. However, general businesses that simply experienced a decline in sales without being subject to gathering bans or business restrictions will be excluded from the support.

According to the 'Loss Compensation Act' (Amendment to the Act on Protection and Support of Small Businesses) primarily proposed by Song Gap-seok, a member of the Democratic Party of Korea, on the 28th, the bill includes such loss compensation measures. Song’s bill was drafted after behind-the-scenes consultations between the ruling party and the government. The ruling party plans to pass the Loss Compensation Act in the National Assembly next month.

First, the legal basis for loss compensation for self-employed individuals was included in the Small Business Support Act. This measure was taken considering that the Infectious Disease Prevention Act could broaden the scope of compensation too much, and that enacting a special law would take a long time. However, the Small Business Support Act limits the support recipients to small business owners only.

The amendment explicitly uses the term 'loss compensation.' Although there were concerns that the scope of loss compensation defined in Article 23 of the Constitution is very narrow?leading to fewer eligible recipients, delays in compensation timing for clear loss compensation, and potential excessive litigation over compensation amounts?the choice was made to use 'loss compensation' rather than 'discretionary support.'

However, there is an expectation that the actual implementation method will likely have the character of 'discretionary support.' This is seen as an unavoidable choice to broaden the scope of recipients and accelerate the support process.

Since the concept of 'loss compensation' is explicitly stated, the compensation recipients are limited to small business owners who were subject to gathering bans or business restrictions. This excludes general businesses currently receiving government support funds (small business owners who were not subject to gathering bans or business restrictions but experienced reduced sales) from the support.

The bill leaves room to compensate other small and medium-sized enterprises affected by quarantine measures. It allows expanding the compensation recipients to include sole proprietorships with five or more employees and small enterprises. However, specific support recipients and the scope of applicable quarantine measures are delegated to enforcement ordinances. There is an interpretation that there remains room for future adjustments, such as recognizing indirect damage to general businesses and including them as compensation recipients.

There is a potential issue regarding how to compensate during the law’s grace period.

The amendment stipulates that the enforcement date of this law will be 'three months after promulgation.' Assuming it passes the National Assembly by the end of next month, it could be enforced by July. Since it applies to losses incurred after the enforcement date, there will be a gap of about three months between the law’s passage and its enforcement. If the COVID-19 spread does not subside, there is a possibility that a fifth disaster relief fund payment situation could arise.

The amendment states that detailed matters regarding recipients, criteria, scale, and procedures will be determined by the Small and Medium Enterprise Deliberation Committee. If quarantine obligations are violated, compensation payments may be reduced or canceled.

This content was produced with the assistance of AI translation services.