Overseas Travel Has Begun... But Duty-Free Industry Faces One Challenge After Another, Including Duty-Free Allowance Increase Issues

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[Asia Economy Reporter Jeon Jinyoung] As COVID-19 transitions into an endemic phase, bringing anticipated revitalization to the stagnant duty-free industry, industry insiders unanimously agree that it is time to resolve long-standing issues such as raising the duty-free allowance and commission fee problems before the full-scale resumption of overseas travel. Although the previous day’s meeting between the duty-free industry CEOs and Customs Commissioner Yoon Tae-sik served as a preliminary discussion on industry difficulties, there remains a consensus that many issues still need to be addressed.

According to the duty-free industry on the 16th, the three biggest current issues are raising the duty-free allowance, improving the commission fee system, and the bidding issues for Incheon Airport in the second half of the year. Various authorities are involved, including not only the Customs Service, which held the meeting the day before, but also the Ministry of Economy and Finance and Incheon International Airport Corporation.

Industry representatives raised their voices demanding the abolition of the duty-free allowance, which has been capped at $600 for eight years. Although the purchase limit was abolished last year, the duty-free allowance remains in effect, requiring consumers to voluntarily report and pay a 20% tax on any amount exceeding the $600 duty-free limit. This is widely seen as effectively eliminating the incentive for duty-free purchases. An industry insider pointed out, "With exchange rates and prices rising, what can you buy with a $600 limit? It is a situation that does not reflect reality at all."

The commission fee issue also remains. The patent commission fee, which is deducted proportionally from duty-free store sales, accelerates the worsening deficits of duty-free shops. According to the industry, the patent commission fee paid by large-scale duty-free operators in 2019 amounted to 73.38724 billion KRW. Although the Customs Service reduced the patent commission fees by 50% for sales in 2020 and last year due to COVID-19, voices are emerging that this reduction should be maintained as the industry has not fully benefited from the reopening. The issue of the daigou (overseas personal shoppers) customer commission fee also resurfaced. To attract daigou, who were a sales channel for duty-free shops, bidding competition arose within the industry, leading to situations where premiums of 20% up to 30% were paid.

The bidding issue for Incheon Airport in the second half of the year is also a hot topic. The method for calculating rent for duty-free shops entering the Incheon Airport terminal needs to be determined, but progress has stalled because no agreement has yet been reached between Incheon Airport and the Customs Service. Unlike the existing method where permission is granted to the operators recommended by Incheon Airport, the Customs Service is demanding a system where two duty-free shops are recommended, but permission is granted to only one of them. An industry insider expressed concern, saying, "There is even talk that all duty-free shops with contracts expiring next year might be removed from Incheon Airport." The Customs Service stated in a phone call, "We are continuing consultations with the working-level staff and making gradual progress," adding, "We are striving to resolve this as much as possible in the second half of the year."

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