Tax Audit Targets Medical Firms
By Cho Jin-seo
Staff Reporter
The National Tax Service (NTS) has started an audit of 30 medicine and medical equipment companies and their partners.
The NTS said Thursday the full-scale audit will cover the entire supply chain, from manufacturing to sales and financial transactions. This is the first time that an industry-wide inspection has been launched on the medical goods industry.
The audit may last for as long as three months, it said.
"We are targeting them because the industry abounds with corrupt bookkeeping practices, such as unrecorded sales and fake tax reporting," said Song Kwang-jo, assistant commissioner of the NTS.
Tax evasion and rebates are rampant in the medical industry where drug manufacturers, wholesale traders and hospitals form close connections with each other. The sellers often create slush funds by cooking the books, and use the money to bribe doctors or other influential people in hospitals to select their products.
The tax office suspects that drug firms sell their products to wholesalers without leaving records to underreport taxable income. The medicines are sold to drugstores and hospitals without leaving a trace.
Another example is that drug distributers created fake purchase records with help from drug firms, and use the money to bribe hospitals and drugstores. The NTS said it has already filed a criminal charge against a firm in Daejeon, after slapping it with 1 billion won in back taxes.
Medical equipment firms are no exception. A Seoul company was found to have made undocumented sales of 2.8 billion won.
The audit came after the ministry decided to suspend licenses of doctors who receive rebates from pharmaceutical firms.
Song also said that it will launch similar inspections into several other industries such as fuel and beverages, where corrupt bookkeeping practices are widespread.
The NTS has said that it will increase the number of tax inspections back to the pre-crisis level as the economy slowly recovers.
Baek Yong-ho, the commissioner of the NTS, said last month that he plans to carry out 18,500 audits this year, up from 2008. Among them, 4,500 cases will be on businesses, 4,000 on individuals, and 5,000 cases will involve value-added taxes and capital gains taxes.