It has come to light that domestic small and midsize flooring manufacturers mistakenly paid about 10 billion won in taxes over several years due to the Korea Customs Service's incorrect classification related to imports of Indonesian plywood.
The Korea Customs Service misclassified the tree species of Indonesian plywood and charged the general tariff instead of the preferential FTA tariff, and a court recently ruled this an "unlawful disposition."
According to reporting compiled by ChosunBiz on Oct. 20, more than 10 domestic small and midsize flooring companies, including Company A, had applied the 5% preferential tariff under the South Korea–ASEAN free trade agreement (FTA) to plywood imported from Indonesia.
However, in 2021 the Korea Customs Service said these products fell under "88 specified tropical timber species," imposed a 10% general tariff, and notified the companies to pay the difference with the 5% already paid. The additional payment totaled 10 billion won.
The issue is the tree species of the imported plywood. "Meranti Down Lebar (Shorea sp.)" brought in by Company A and others is one of several subspecies in the genus Shorea, and is eligible for the preferential tariff under the FTA.
But the Korea Customs Service determined it to be the same species as "Shorea uliginosa Foxw.," that is, "Meranti Bakau," which is subject to an adjustment tariff.
Company A said, "The Korea Customs Service's simple misunderstanding of plant taxonomy was forcibly turned into taxation."
The problem is that the Korea Customs Service distorted a response from an Indonesian government agency to produce a report stating the species were "the same."
According to the Korea Customs Service's "Overseas business trip report on origin information collection for the South Korea–ASEAN FTA, Indonesian plywood," obtained by ChosunBiz, the agency visited the Forest Products Research and Development Center under Indonesia's Ministry of Environment and Forestry in 2018 for inquiries, but the Indonesian side clearly answered, "The two woods only have similar regional names, and without experimental analysis it cannot be concluded they are the same species."
Nevertheless, the Korea Customs Service wrote in the trip report, "The scientific name of Meranti Down Lebar is Shorea uliginosa, and we confirmed it is the same species as the standard name Meranti Bakau."
Afterward, in 2019, Indonesia's Ministry of Trade replied that "Meranti Down Lebar is not included among the 88 specified tropical timber species," but the Korea Customs Service pressed ahead with additional taxation, ignoring this fact.
As a result, companies shouldered an unexpected tax burden of several billion won. A small business official said, "Because of a one-line official document from the Korea Customs Service, our company's cash flow stopped," adding, "A wrong administrative decision drove small and midsize businesses to the edge."
Company A and others filed an administrative appeal and then an administrative lawsuit last year, and in May the Seoul Administrative Court ruled that "the Korea Customs Service's imposition of an adjustment tariff is unlawful."
The Korea Customs Service must return the additional tariff paid by Company A and others. However, the court said, "There is no grave and obvious defect that would constitute, for example, drafting a false report," and did not recognize criminal liability.
However, the small and midsize business community says, "It is hard to accept an interpretation that says it is not 'false' even though the contents of the official document differ from the facts."
A Company A official criticized, "The Korea Customs Service pushed through taxation even though it knew the additional taxation was unjust," adding, "It is an irresponsible attitude that suggests wrongly levied taxes can simply be returned and that's the end of it."
The Korea Customs Service countered, "There was no reason to draft a false report, and all taxation followed legitimate procedures under the law." However, as the court ruling has shaken the basis for the taxation, there are calls for an audit by the Board of Audit and Inspection or a National Assembly-level investigation.
Experts noted, "FTA origin determination is directly tied to national credibility, but the Korea Customs Service interpreted it arbitrarily and shifted the burden onto corporations," adding, "Institutional improvements are urgently needed to prevent similar cases from recurring."