Double Loss from Currency Rates & Tax for Airline and Marine Transportation Industries

Currently, the net debt denominated in foreign currencies, which is obtained by subtracting assets form the gross debts, amounts almost to 10 billion dollars. (6.8 billion dollars for the marine transportation industry, and 3 billion for the airline) It is a shocking number.

Under the current accounting standards, profits or losses from currency exchange rates are to be counted in the financial statement. The managerial profits in the marine transportation business are determined mostly not by real performance, but by the exchange rate of won against dollar. According to the Korea Ship owners’ Association (KSA), the industry profited almost 1.2 trillion won (approximately 1 billion dollars). Nonetheless, due to the loss of 454.3 billion won from the cost of exchanging currencies, it had to sustain 442.3 billion won in the periodical net loss. Accordingly, the industry’s trustworthiness was lowered down. As a result, it has to accept many disadvantages in financing.

Executive director Kim Tae-Jin of KSA contended, “Our industry receives fares in dollar and pay back our debts in dollar. There is no need to exchange dollars into won. We should be allowed to book the profits and losses from exchanging separately at least regarding paying-back periods.”

The industry complains that when the currency rates are not advantageous, our trust is put at risk; and that if the situation is vice versa, they have to pay more tax on the profits.

One employee of Han Jin in charge of accounting said, “The Tax Law gives 5-year long tax credits for the losses sustained in exchanging currencies. If the loss is not written off within the 5 years, we have to pay tax on the money that has never been put into our pocket.”

The profits from exchanging currencies (PEC) occur when booking the assets and debts denominated in mostly dollar into won. Net PEC is left from subtracting foreign currency losses from PEC.

Kwang-Am Cheon iam@donga.com