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North Korean city agencies promote business to grab taxes

[As Heard in North Korea]
2017-09-05 16:47 | Unification Media Group | Read in Korean
Unification Media Group (UMG): In an effort to boost tax income, local government officials in North Korea are encouraging privately run businesses. As such, the number of small businesses like beauty salons is on the rise. The more luxurious privately-run beauty shops can cost more than 50 times the price of the state-run shops due to patronage from party cadres and the donju (newly-affluent middle class). 

Regional governments are exercising a degree of autonomy by encouraging businesses through the commercial departments of the Peoples Committees at the city-level. In the past, individuals were more likely to submit the requisite paperwork first, but now the regional governments are taking a more proactive approach. Business management offices are supplying signboards and collecting taxes from a diverse array of local businesses, including restaurants, small stores, and beauty salons. The efforts are seen as a way for local governments to address their budget issues. 

Sensing the increasing support, private businesses have been on the rise. This, in turn, has caused social and lifestyle changes for North Koreas residents. As marketization continues to advance, consumers are accumulating more buying power, which in turn opens up previously untapped markets for businesses to take advantage of. Beauty salons are one type of business that has been greatly affected by this surge in support. Today, well discuss the differences between public and private beauty salons with Seol Song Ah.

It seems as if the regional authorities have concluded that private business needs to flourish if the economy is to grow. Can you explain how the authorities are using these businesses to increase their tax income? 

Seol Song Ah (Seol): In the 1980s, beauticians working at state-run salons began to secretly offer haircuts and perms to clients at night for money. The phenomenon continues to this day, as the public sector employees fly under the radar by doing for-profit services at night and during the weekends. The regional authorities are unable to tax these furtive, small-scale ventures. 

Moving forward, people began to cut and style hair outside the official marketplaces. Its easy for these service providers to evade the authorities and avoid taxes. Business people who set up shop and register their business using their own capital have to pay a 10% fee to the authorities. Thats why the local authorities have been pushing local business people to register and operate out in the open. Its so they can collect the taxes.  

UMG: What effect is this having on the publicly-run beauty salons? 

Seol: They continue to operate as usual. The state-run facilities are cheaper, so those with lower incomes tend to visit them. According to an inside source in South Pyongan Province, the new middle class patronize the privately-run salons. 

The source said that private salon operators have good skills and the right materials to do perms, so they tend to attract a lot of customers even though they charge way more than the public salons.

Private salons also offer many different services, while the public ones have only one price set for cutting and styling hair. The private salons cater to the wealth and tastes of their clients, which explains the price differential. These businesses are looking to maximize profits and satisfy customer needs.  

UMG: Can you walk us through the typical path that these business people pursue? How do they usually acquire the skills and go into this line of work? 

Seol: North Korea still hasnt institutionalized private property and does not recognize private education. So that essentially means that even beauty salon training is a blackmarket service. But that doesnt mean that its hard to find. High quality private schools can even be found in the revolutionary capital of Pyongyang. This shows that the authorities tacitly accept these businesses, even though theyre officially illegal. 

Right near a childrens park in Pyongyang called Changkwangwon, one can find private schools that train in skincare, haircutting and styling. In the mid-2000s, the cost to attend was US$10 for a week, but demand has risen and so now the costs can climb to US$100. This fee includes hands-on practice. After the course is complete, the students can buy all the equipment they need nearby. 

UMG: So the students are investing foreign currency in order to learn these skills. After that, they need to invest in starting a business, which must also be a costly endeavor. I wonder if some of these business people therefore try to avoid paying tax. 

Seol: The city-level Peoples Committees will sometimes excuse new business people who have recently started a business if they dont pay the requisite fees. But after a couple of months, things change. For instance, if the business owners lie to the authorities and say that they arent yet making a profit even though they really are, they can be subject to judicial punishment. This means that their business operations get shut down and the legal agencies are mobilized to seize the companys assets. 

This convention doesnt merely apply to barbers, salons, and other convenience shops. It applies to all private businesses. 10% of monthly profits must be contributed to the regional authorities. 

UMG: Very interesting. Can you describe the modern trends in the salon industry? 

Seol: One surprising thing is that the publicly-operated salons are not as cheap as one might expect. In one such South Pyongan Province shop, for example, it costs 3,000 KPW (about US $0.40) to get a perm for short hair and 5,000 KPW (about US $0.60) for long hair. This is equal to the monthly salary that the workers in the shops are making. But we dont know whether this particular price is common, or if prices in the public salons differ from one region to the next. 

A normal perm at a privately-operated salon runs from US$5-10. A very high-end shop will charge as much as $20. The luxury shops are distinct in a number of ways, including in the quality of the rolls and straighteners that they use. According to the source, its possible to pay for services in North Korean won, Chinese yuan, or US dollars. 

UMG: Despite the fact that private shops are much more expensive, you said theyre quite popular. Why is this the case? 

Seol: Thats right. It can cost as much as 50 times more to get your hair done at a private shop. But there are still customers going to the private salons. This phenomenon gives us a glimpse into the changing cultural and economic life of the residents.  

The marketization of North Korea has fundamentally altered peoples lives. The living standard hasnt yet approached a developed standard, but its fair to say that the people are no longer responding to the coercive culture perpetuated by the regime. 

Even young women who arent wealthy do not want to fall behind the fashion trends in North Korea. Housewives are saving up small amounts of money at a time to start decorating their homes. The styles and tastes are gradually approximating those introduced by South Korean media smuggled into the country via USBs, pirate radio broadcasts, and micro SDs.