[2022 Economic Policy] Duty-Free Purchase Limit Abolished After 43 Years

Up to 20% Deduction When Spending Increases at Traditional Markets

Tourists enjoying shopping at the duty-free shop in the arrival hall of Terminal 1, Incheon International Airport on June 4th. It was the day the duty-free shop in the arrival hall of Incheon Airport, which had been closed since October last year due to the impact of COVID-19, resumed operations after seven months. Photo by Airport Photographers Group

[Sejong=Asia Economy Reporter Moon Chaeseok] The government will abolish the duty-free purchase limit system, a long-standing demand of the duty-free industry, after 43 years. This measure aims to support the duty-free industry and gradually normalize the international tourism industry infrastructure in connection with the improvement of quarantine conditions, as well as to shift travelers' overseas consumption to domestic consumption. Since the demand for duty-free shopping is likely to increase as travel demand rises with the improvement of COVID-19 quarantine levels, the government decided to lift the purchase limit accordingly.

On the 20th, the government announced next year's economic policy direction containing these details. According to the government, the purchase limit gradually increased from $500 (about 593,500 KRW) in 1979 to $5,000 (about 5,935,000 KRW) in 2019. The duty-free industry has argued that the pace of easing the purchase limit is slow compared to the purchasing power of the public and has requested a prompt relaxation of the regulation to help the recovery of the duty-free industry, which was hit hard by COVID-19.

A government official stated, "The duty-free purchase limit restriction was established in 1979 to curb consumption of overseas products, but considering Korea's current foreign exchange reserves and economic scale, the original purpose of suppressing excessive consumption and preventing foreign currency outflow has become less relevant." He added, "We expect to improve the problem where consumers had to purchase high-priced products overseas due to the low purchase limit and to revitalize the operation of the duty-free industry by converting overseas consumption to domestic consumption."

To support the aviation and duty-free industries until international tourism resumes, the government decided to extend the operation period of non-landing sightseeing flights by six months, from the end of this year to the end of June next year. Seat restrictions will also be lifted to be the same as regular routes. Currently, quarantine seats and distancing seats are restricted.

Overview of the Additional Consumption Special Deduction System. The government has decided to implement the existing system (top row) alongside an additional deduction system for increased spending in traditional markets (bottom row). When both are applied, consumers can receive up to a 20% deduction benefit. (Source: Ministry of Economy and Finance)

Additionally, the government will provide up to a 20% income deduction with a limit of 1 million KRW for increased consumption in traditional markets. The special additional consumption deduction program, first implemented this year, will be extended for another year, and additional deductions will be given for increased consumption in traditional markets. This program increases the credit card income deduction limit by 10% if credit card consumption increases by more than 5% next year. Furthermore, a deduction system for increased consumption in traditional markets will be implemented starting next year. Consumers who spend more than 5% compared to this year in traditional markets will be able to receive an additional 10% deduction on the increased amount.

A government official explained, "If the total consumption increase exceeds 5% after the introduction of the separate income deduction system for each target, a 10% deduction will be given according to the current special additional consumption deduction program, and an additional 10% deduction will be applied for increased consumption in traditional markets." He added, "When both programs are applied simultaneously, deductions of up to 20% are possible."

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