North Korea revised tax regulations in August for South Korean businesses operating in the joint Kaesong Industrial Complex. The regime said that it will impose hefty fines on companies if caught dodging taxes, and that they would amount to 200 times the tax amount they attempt to evade.
According to original regulations that were agreed in 2003 when both Koreas were working to open the complex, Pyongyang is required to negotiate with Seoul any changes to the relevant tax laws. But the North made the revisions arbitrarily without consulting the South.
Then North Korea accused some companies of under-reporting the prices of their products and apparently slapped punitive taxes based on the new rules on 10 out of the 123 companies in the industrial park.
The North has threatened to either block their exports or evict them from the complex if they fail to pay up. It has also demanded businesses there pay retirement bonuses to all workers who have quit, even though employers are required to award such payments only to workers who they have to let go due to business circumstances after they have worked there for at least one year.
Since it opened in 2004, South Korean companies at the complex have paid North Korea US$245.7 million in salaries for the workers. The regime pocketed more than $60 million each year in workers' salaries and taxes from the complex.
In August, North Korean eminence grise Jang Song-taek visited China and sought Chinese investment in the special economic zone of Rajin-Sonbong and other areas. But a Chinese company which invested $45 million in a North Korean iron mine has pulled out empty-handed after the North unilaterally raised rent, utility prices and salaries. The Chinese company warned other firms to watch out when they invest in North Korea, since there are no safeguards to protect foreign investors.
North Korea must be dreaming if it thinks foreign companies will simply submit to such an arbitrary regime, let alone pour fresh investment into the country.