A recent hike in taxes at certain general markets in North Korea has brought grief to some North Koreans. According to sources in South Pyongan Province, market fees now average more than KPW 3,000 (approximately USD 38 cents).
Generally, a normally functioning state will do its utmost to guarantee that its citizens earn a basic income. Such a state also focuses on ensuring that citizens receive equal access to education, medical care and welfare.
How then does North Korea, which deems itself a normally functioning state, measure up? North Korea’s failure to guarantee any of the above for its citizen begs the question of whether the state is more interested in extortion. The increase in market fees is one manifestation of this conduct.
GOING BACK TO THE BEGINNING
Let us first return to the past. In 2004, following North Korea’s official recognition of markets, the North Korean Ministry of Finance released its 30th set of instructions, entitled “Management Regulations for Markets.” It began to collect market fees from stalls in general markets run both by individuals as well as institutions and factories, all under the pretext of charging for usage of the market.
The instructions issued at the time by the finance ministry are as follows:
Article 1. These instructions are aimed at improving the administration of the financial affairs of market management offices, and the thorough collection of market usage fees from a portion of the income earned at vendors run by both individuals as well as institutions and factories.
Article 2. These regulations apply to state-run factories, cooperative organizations (including collective farms and farms) as well as approved individuals who engage in commercial activity within the markets and under the auspices of market management offices in North Korea.
The market fees specified in the instructions issued by the ministry of finance at the time were in the range of KPW 100 to 400 per item, equivalent to about 10% of the profit.
Table 1: Market Fee Payment Regulations at General Markets in 2015
Source: The 30th set of instructions from the finance ministry, “Management Regulations for Markets,” (Pyongyang: Ministry of Finance 2004). Data collated by author based on p. 5 of the Regulations.
From here, the market fees continued to rise. Today, in 2019, the market fees range from KPW 3,000 to 12,000 at the Pyongsong Market. This is about 30 times higher than what the fee was in 2005.
Table 2: Market Fees at General Markets in 2019
Source: Data collected by author from Pyongsong Market
As can be seen, market fees for grain vendors amount to about KPW 3,000 per stall. This is equivalent to the price of about 1.5 kilograms of corn in North Korea, based on local market prices. When business is good, this isn’t a problematic amount; however, when business is not so great, merchants suffer.
A typical North Korean is doing well for themselves if they earn about KPW 10,000 a day. Ultimately up to 30% of these earnings will be used to pay market fees. That is, the state is taking a total of 30% in taxes. Naturally, this has led to complaints from market merchants. These seemingly limitless hikes in market fees have provoked complaints such as, “the changes are so frequent that it is difficult to know whether they’re by direct orders of the state, or the behavior of some individuals.” The changes in the fees are so dramatic that some have mockingly nicknamed the fee a “thieves’ tax.”
In addition, the crackdown on so-called “grasshopper” merchants (merchants who sell on the streets outside of official markets) has also intensified. Since August, the market management offices, claiming to be carrying out the orders of the Party, have mobilized their officials to collect taxes even from sellers operating outside of the official markets.
As a consequence, grasshopper vendors, who are generally unable to earn as much as vendors within the markets, moved further away from market entrances in an attempt to avoid paying fees. Due to this, market management offices brought the matter to the People’s Committee and mobilized police forces and roaming patrols made up of laborers to crack down on street vendors. The move was an indication of their determination to collect a “market fee” no matter the circumstances.
The North Korean state has long exploited the labor of its citizens with appeals to patriotism. This conduct has continued even in the current period of “marketization,” when government distributions have officially stopped. It is inevitable that people should complain, when the state, without any guarantee in return, only continues to enact policies that have very little regard for their realities.
THE WAY FORWARD
What, then, can the North Korea state do to normalize its economy? First, it is crucial that the state understands the international economic situation as well as the domestic market situation. In addition, it must not neglect to nurture experts in tax collection and the market economy. At the same time, it must aim for basic improvement in specific sectors as part of a broader improvement of the overall economic situation, while autonomy of individuals and corporations in their economic activity.
It is especially necessary to approach the taxation issue with caution. A system of taxation must be properly designed on the basis of household income research. Moreover, it is important to recognize that market profits vary dramatically from year to year depending on the production quantity and market prices. The state must be sensitive to changes in its response.
For all these reasons, it is possible to argue that the most important thing is to let go of rigid thinking and adopt an attitude of learning. It is now time to decisively abandon the past, in which taxes and grains were collected on the basis of state planning.
Above all, the state must abandon the position that a market economy is the enemy of a socialist economy. Through bold reforms and openness, North Korea must regain the trust of the international community, and explore ways to collaborate with expert economists who can lead the way to a normalization of the economy.
*Translated by Violet Kim and edited by Oliver Osuna
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