Officially,

North Korea North Korea, officially the Democratic People's Republic of Korea (DPRK), is a country in East Asia. It constitutes the northern half of the Korean Peninsula and shares borders with China and Russia to the north, at the Yalu (Amnok) and T ...

does not have domestic

taxes A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...

and claims to be the world's only tax-free country. However, the North Korean government still collects revenue from its citizens in the form of hidden taxation through various sales taxes. In particular, the

turnover tax A turnover tax is similar to VAT, with the difference that it taxes intermediate and possibly capital goods. It is an indirect tax, typically on an ad valorem basis, applicable to a production process or stage. For example, when manufacturing act ...

from consumption provides for the majority of the state revenue in North Korea.. The North Korean government, therefore, does collect revenue, in a manner which has been compared to a taxation system by international observers. However, inside North Korea the word "tax" is not used, and the term for state revenue has been variously translated as "socialist income accounting", "socialist economic management income", and in similar fashion. "Tax Abolition Day" is observed annually on 1 April in North Korea. Direct taxes, such as

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

, were officially eliminated in 1974 as "remnants of an antiquated society". Enterprise "transaction income money", somewhat similar to the modern

value-added tax A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the en ...

, later replaced by "national enterprise profit money", continued as a form of corporate taxation. The elimination of direct taxes did not have a significant effect on state revenue because the overwhelming proportion of government funds—an average of 98.1 percent during 1961–1970—was from sales taxes such as

es, deductions from profits paid by state enterprises, and various user fees on machinery and equipment, irrigation facilities, television sets, water, and so on. This is in line with similar practices in other

socialist Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the ...

countries. Agricultural tax-in-kind introduced in 1947 was abolished in North Korea in 1966, as the process of collectivization of North Korean agriculture ended. Another form of tax in North Korea is periodic requirements for citizens to donate materials or work free of charge on government projects. Special taxation laws also affect the special economic zones in North Korea (in particular the

Kaesong Industrial Region The Kaesŏng Industrial Region (KIR) or Kaesŏng Industrial Zone (KIZ) is a special administrative industrial region of North Korea (DPRK). It was formed in 2002 from part of the Kaesŏng Directly-Governed City. On 10 February 2016, it was temp ...

) where foreign companies are allowed to operate. There is therefore corporate tax in North Korea, as outlined by the Processing Trade Law, Lock Gate Law and

Copyright Law A copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, educatio ...

, and related legislation, including laws on

tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the tax ...

. An estimate of this corporate tax in early 2000s was for 10–14%. North Korean workers there are subject to the usual indirect taxation: their wages are paid in hard currencies by foreign companies to the North Korean government, which then pays the workers in North Korean currency, minus the value of insurance taxes and socio-cultural fees. A 2013 estimate of the taxes on individual Kaesŏng Industrial Region workers was 45% of their wages. Enterprises outside special economic zones make payments to the state based on their profits, essentially a form of corporate tax. As of 2018, after tax changes made in August 2016, the rate was progressive dependent on the level of profits, at a rate of up to 32.5% in released financial reports.

References

External links

Regulations for the Implementation of the Law on Foreign-Invested Business and Foreign Individual Tax (approved by Decision of June 14, 2002, of the Cabinet of the Democratic People's Republic of Korea)
{{Asia topic, Taxation in

Government of North Korea Economy of North Korea

References

Further reading

External links