Operating Loss 100% vs 60-80%... Compensation System's 'Uncertain Start'

Loss Compensation System Implemented on the 8th... Review Committee Finalizes Calculation Criteria and Rates
Small Business Owners Demand "100% Compensation"... Government Leans Toward 60-80%
Up to 3 Trillion Won in Compensation for Q3 This Year... Controversy Over 'Blind Spots' in Travel Industry and Others

On the 6th, the streets of Myeongdong, Seoul, appeared to have lost their vitality due to the prolonged COVID-19 pandemic. Prime Minister Kim Boo-kyum stated at the Cabinet meeting that day regarding the compensation system for small business owners affected by COVID-19 quarantine measures, "We will ensure that small business owners can receive compensation by the end of this month at the latest." However, he added, "The compensation targets are losses directly caused by quarantine measures such as gathering bans and business hour restrictions enacted after the law was promulgated on July 7," and "Unfortunately, losses before that date and indirect losses are not covered, so it may fall short of the expectations of small business owners." / Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Junhyung Lee] Park Young-hoon (pseudonym), who runs a cafe in Sillim-dong, Gwanak-gu, Seoul, suffered a loss of 200 million won from November last year, when quarantine measures were strengthened, until last month. His fixed monthly costs, including rent and labor costs, amount to 25 million won, but he recorded losses ranging from 5 million to 20 million won each month. Park said, "Even if you add up all the support funds I have received so far, it does not reach 10 million won," adding, "Even if the current loss compensation covers 100% of sales, it is still not satisfactory." He added, "This (loss compensation) standard can become a criterion for all future business rights regulations, so it is very important."

The loss compensation system for small business owners affected by COVID-19 quarantine regulations will be implemented on the 8th. The government will hold a Loss Compensation Deliberation Committee meeting on the day to finalize detailed standards related to loss compensation and plans to pay the compensation by the end of this month at the latest. However, while small business owners are demanding 100% compensation for business losses, the government plans to finalize compensation payments at a level of 60-80%, which is expected to cause controversy.

At the Loss Compensation Deliberation Committee meeting chaired by Kang Sung-chun, Vice Minister of the Ministry of SMEs and Startups, key implementation guidelines such as the basis for calculating compensation amounts, rates, and payment procedures will be reviewed and finalized. The compensation target is business losses caused by direct government quarantine measures such as gathering bans and business restrictions after July 7. Unlike disaster relief funds, this is a customized loss compensation proportional to the damage scale of each business rather than a fixed payment method for certain ranges. Applications and payments for compensation will begin by the end of this month at the latest.

O Se-hee (left), president of the Korea Federation of Small and Medium Business, along with the co-chairmen of the Self-Employed Emergency Committee, held a press conference on the 8th in front of the tent protest site set up at Sejongno Park near the Government Seoul Office in Jongno-gu, Seoul, urging the relaxation of quarantine guidelines and compensation for losses. Photo by Kang Jin-hyung aymsdream@

The key issue is the compensation rate. Small business organizations such as the Korea Federation of Small and Medium Business Owners and Self-Employed have been demanding 100% compensation for business losses. Their argument is that self-employed people bore business losses in accordance with government quarantine guidelines and that full compensation should be made according to the purpose of establishing the loss compensation system. The Korea Self-Employed Association stated in a press release on the 7th, "What the self-employed want is complete and fair loss compensation," adding, "For complete compensation, when calculating the average daily loss amount, all fixed costs registered with the National Tax Service, including sales difference, rent, labor costs, and electricity bills, must be compensated."

On the other hand, the government is leaning toward some compensation plans. One plan is to compensate 80% of business losses for gathering-ban facilities such as entertainment bars and 60% for business-restricted facilities such as cafes and restaurants, or to apply a uniform loss compensation rate of 80%. Prime Minister Kim Boo-kyum said on the 6th, "The purpose of the law is to help save the entire industry, so full compensation of losses is difficult," adding, "We inevitably have to set certain upper and lower limits."

Budget is also a variable. The government has secured a budget of about 1 trillion won for loss compensation in the third quarter of this year. There are observations within the government that the loss compensation amount for the third quarter alone could reach up to 3 trillion won this year, raising concerns that the allocated budget alone is insufficient.

There are also concerns about 'blind spots.' The enforcement decree of the Loss Compensation Act, which passed the Cabinet meeting last month, limits the payment targets to industries subject to gathering bans and business hour restrictions. Industries subject to operational restrictions such as personnel limits are excluded. Facilities such as gyms with restricted use of auxiliary facilities and industries with significant sales declines such as travel and performance industries are excluded from the target.

The Loss Compensation Deliberation Committee stated that it has done its best for reasonable compensation. Vice Minister Kang said in his opening remarks at the committee, "Last month alone, we held seven meetings with more than 20 small business associations to listen to voices from the field and reflect them in the system," adding, "As soon as the notification process is completed, we plan to start accepting loss compensation applications as quickly as possible, and small business owners included in the pre-established database (DB) will receive compensation within two days from the application date."

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