South Korea’s duty-free industry, once a booming sector, is now grappling with plunging revenues, mounting losses, and calls for urgent reform to a licensing fee system that operators say is ill-suited to the post-pandemic reality. /News1

The South Korean duty-free industry is voicing frustration over a licensing fee rate that has remained unchanged since 2017. Industry officials argue that the government’s continued enforcement of a fee structure designed for a period of rapid growth—when annual industry expansion exceeded 20%—is unfair given the sector’s current struggles.

The industry’s total revenue, which peaked at 24.9 trillion won (approximately $17.6 billion) in 2019, plunged to the mid-$7 billion range in 2020 as the COVID-19 pandemic curtailed global travel. Last year, revenue shrank further, even compared to the height of the pandemic. While international travel has nearly returned to 2019 levels this year, duty-free sales remain at roughly half of pre-pandemic figures.

“We’ve tried to cut costs by restructuring our workforce and downsizing, but it’s not enough,” said an industry insider. “If the government doesn’t reduce licensing fees, we won’t be able to survive,” he added.

S. Korea’s duty-free licensing fees were initially implemented to redistribute corporate profits back into society. Before 2013, the fees were calculated based on the size of duty-free shop premises. After facing criticism for giving duty-free operators preferential treatment, the government changed customs regulations, switching to a revenue-based fee of 0.05%.

The system was further revised in 2017 to impose a tiered structure: companies with annual sales exceeding $706 million pay 1% of revenue, while those with sales between $141 million and $706 million pay 0.5%. This change resulted in duty-free operators collectively paying $72.8 million in licensing fees in 2018.

Between 2010 and 2019, the duty-free industry grew at an impressive average rate of 21% per year, becoming a major source of revenue and profit. Even with licensing fees, businesses thrived. But the pandemic changed everything. By 2022, revenue had plummeted to $9.7 billion, and this year, despite a rebound in international travel, sales are still only 59% of 2019 levels.

“The link between passenger numbers and sales isn’t what it used to be,” said another industry representative, pointing to the structural shifts caused by the pandemic.

Duty-free operators are urging the government to revise the current system, which they say is outdated and poorly aligned with today’s economic realities.

Duty-free operators are calling on the government to overhaul the current system, arguing it’s outdated and no longer fits the economic realities they face today. They point out that revenue-based licensing fees are rare internationally. Countries like Thailand, Taiwan, Malaysia, Australia, and Singapore use fixed annual fees, while Japan bases its charges on shop size, ranging from about $1,000 to about $7,000 per month.

The industry is making desperate efforts to cut losses. Lotte Duty Free implemented voluntary retirement programs and reduced executive salaries by 20% this year. Shinsegae Duty Free, for the first time in its history, also offered voluntary retirement packages. Both companies, along with others, have reduced retail space.

“Business has been struggling for five straight quarters since the third quarter of last year,” said an official. “This year, the top five duty-free operators are expected to face a combined operating loss of over $140 million.” Meanwhile, the workforce in the duty-free sector has nearly halved, dropping from 35,055 employees in 2019 to around 17,000 today.