South Korea's audit agency has found that foreign tobacco firms have evaded taxes worth nearly 200 billion won from huge profits they gained from a tobacco price hike last year.
The government was also found to be partly responsible for the tax dodging as it did not prepare related regulations when proposing legal revisions for the cigarette price hike, thereby creating tax loopholes.
In May, the Board of Audit and Inspection began looking into government agencies, including the Finance Ministry, to determine how they oversaw the profits gained from the tobacco price hike. After a month and a half of probing, they pinned two foreign tobacco firms for tax evasion.
Investigators said that by stockpiling products and selling them after the price was raised, they were able to dodge taxes close to 170 billion and nearly 40 billion won, respectively.
The firms abused the fact that taxes on cigarettes were imposed at the time when the goods are transferred from the manufacturer to the distributor.
The auditor explained that the companies purposely hoarded inventory and sold them after tobacco prices were raised starting January first, 2015.