North Korea needs hard currency to keep its isolated regime afloat, and there are indications that Pyongyang is feeling the pinch of sanctions. For one, increasing numbers of workers are being sent abroad to earn foreign cash that is returned to the North or hidden away for Kim Jong Un’s personal use.
More recently, however, come reports from Yonhap that the fingers of the government are digging deeper into the pockets of the donju, the newly emerging middle class and source of all entrepreneurial spirit in North Korea. Those that do not pay bribes to local officials face the risk of their property being confiscated.
This is noteworthy for several reasons.
DEATH AND TAXES
To begin with, forcing donju to pay bribes or face consequences is a quite capricious ad hoc tax system, and one that is rife with corruption and skimming. Pyongyang never sees the full extent of the collected amounts, and, as a consequence, efforts to raise revenue are never fully realized. This, not surprisingly, generates strong feelings of resentment towards authorities in particular and the regime in general. Taxation in the form of ad hoc bribes will never be seen as legitimate.
There are more effective, more reliable, and less odious ways to generate income for government: taxes. Taxes have the advantage of being more consistent – a constant rate or fixed fee structure – and thus are perceived as more legitimate. North Korean bragging about not having or needing a tax system is a conceit that even Kim Jong Un realizes is an economic fiction totally without validity.
…forcing donju to pay bribes or face consequences is really a quite capricious ad hoc tax system, and one that is rife with corruption and skimming
In March of this year, the Joong Ang Daily, one of the more reliable South Korean newspapers, reported that Kim Jong Un was considering the implementation of some sort of taxation system. The source of that reportage was quoted as having said that “the central government will grant economic autonomy to local merchants in exchange for collecting bills for utilizing land, water and electricity.” This was said to be in preparation for Workers’ Party of Korea (WPK) convention that was held last May.
But there has been no follow-up on that story. Last month, we saw a report from the Korea Herald regarding the first meeting in ten years of economic officials tasked with carrying out the five-year economic plan announced by Kim Jong Un at that WPK convention. Once again, there has been precious little information about this.
North Korea has prided itself on having no tax system and being the only country in the world that is tax-free: the system that had been in place was abolished in 1974 by the Supreme People’s Assembly under Kim Il Sung. That boastful claim notwithstanding, the state generates revenues by collecting a litany of fees and other periodic levies or forced bribes from its citizens. To paraphrase Shakespeare, “A tax by any other name would burden just as heavily.”
DONJU FORGET ABOUT ME
It would be interesting to learn whether Kim Jong Un’s reported musings last March about a new tax system will become reality, or whether posturing of North Korea about not having taxes is more important to the regime. One way or the other, it could indicate how the North intends to deal with its moribund economy.
One thing seems certain: if Pyongyang continues to collect money by whim and by force from the very group of people that contribute so much to keep the regime afloat, there eventually will come a time when there is little more to collect. Merchants cannot survive on meager profits and growth cannot occur without adequate injections of capital.
To paraphrase Shakespeare, “A tax by any other name would burden just as heavily”
It is the donju and the entrepreneurial farmers that have mitigated the disasters of the all but abandoned Public Distribution System for food and a few basic goods. To put it simply: the North runs the risk of killing the geese that lay the golden eggs.
So, is it better for Kim Jong Un to continue to make serious mistakes in how he treats the donju, since that could eventually lead to civil unrest and some sort of civil resistance that might cause economic or political change?
Or is it better that Kim Jong Un mimics how most legitimate governments obtain funding from their citizens by implementing a formal tax system that is better tolerated and ethically more sound, leading to a slightly more enlightened style of revenue generation and a more stable financial life for the donju?
The responses to these questions depend in large part upon one’s perspective.
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Featured Image: North Korea beauty in Pyongyang by Eric Lafforgue on 2008-09-08 11:02:56