Chinese Tourists Shop, Travel Agencies Earn Commissions... Government's "30% Cap" Plan Draws Industry Backlash

Up to 65% allowed for cosmetics and health functional foods through 2027
Travel industry calls for delay until 2030
Ministry considers penalizing both parties in name-lending schemes and recovering unjust gains

The government is pushing to cap shopping commission rates at 30% starting in 2028 for designated travel agencies that bring in Chinese group tourists. While the travel industry agrees with the goal of addressing the harm caused by low-cost tours, it has called for an extension of the grace period, citing concerns that reduced commission income will increase the financial burden on businesses. Some have also warned that indirect transactions through companies outside the scope of the regulation could increase.

Lee Jinseok, chairman of the Korea Association of Travel Agents (KATA), speaks at a public debate on amendments to the Enforcement Regulations of the Tourism Promotion Act at Seoul Garden Hotel in Mapo-gu, Seoul, on the 13th. Photo by Kim Heeyoon.

According to the travel industry on November 15, the Ministry of Culture, Sports and Tourism held a public debate on amendments to the Enforcement Rules of the Tourism Promotion Act at the Seoul Garden Hotel in Mapo-gu, Seoul, on November 13, presenting a cap and criteria for shopping commission rates that designated travel agencies receive from duty-free shops and other retailers. The measure follows amendments to the Tourism Promotion Act in June and aims to reduce ultra-low-cost tour packages that rely on excessive shopping commissions and expand sales of tourism products at reasonable prices.

The proposed amendment would cap shopping commission rates at 30% for both bonded duty-free shops and tax refund shops for foreign tourists, regardless of product category, starting in January 2028. Until the end of 2027, differentiated caps would apply to allow the industry time to revise contracts and adjust prices. The caps would be 35% for bonded duty-free shops (pre-purchase duty-free shops) and, for tax refund shops for foreign tourists (post-purchase tax refund shops), 40% for agricultural, livestock, and fishery products such as seaweed, 45% for jewelry, 65% for cosmetics and health functional foods such as ginseng, and 35% for other products.

The commission rate would be calculated monthly as the commission a designated travel agency receives from a retailer divided by the total amount spent by the tourists it brings in. Value-added tax and tax refund amounts would be excluded from the purchase total, and canceled or refunded purchases would not be included in the calculation. However, the parent law prohibits conduct that significantly lowers the cost of attracting tourists and disrupts order in the travel industry by receiving commissions above the prescribed rate. Whether a violation has occurred must therefore be determined based on the legal requirements.

Opposition within the industry continued over whether the commission caps are appropriate and when they should take effect. Jang Yujae, CEO of KCT Travel and vice president of the Korea Association of Travel Agents, said the issue was how small and midsize travel agencies that have relied on shopping commissions would cover guide compensation and the costs of attracting tourists. He said time was needed to renegotiate terms with Chinese outbound travel agencies and bring tour package prices to reasonable levels, and proposed delaying the introduction of a single 30% cap until 2030.

A draft revision to the cap on shopping commission rates for Chinese group tourists, released by the Ministry of Culture, Sports and Tourism on the 13th. It proposes applying different rates of 35% to 65%, depending on the store and product, through the end of 2027, then imposing a uniform 30% cap beginning in 2028.

Kim Jeonghwan, CEO of Navi Tour, also argued that a uniform 30% cap was unreasonable, given that distribution structures, costs, and profit margins differ by retailer and product. He proposed maintaining different rates by product category while lowering commission rates in stages. Representatives of small and midsize post-purchase tax refund shops also warned that applying the same standard to large pre-purchase duty-free shops, which can attract customers on their own, and post-purchase tax refund shops, which rely on travel agencies to bring in tourists, could put the latter at a disadvantage.

Hwang Seonung, an attorney at Wooil Law Office, said the grace period was too short, given the annual contract practices of post-purchase tax refund shops and the time needed to sell existing inventory. Alongside the commission cap, he proposed improving the transaction structure by introducing fair-trade contracts between designated travel agencies and retailers, establishing an electronic settlement system, and strengthening monitoring of unlicensed guides and illegal tour packages.

Meanwhile, some in the industry voiced self-criticism over illegal and improper business practices. Jeon Seongjun, CEO of Ihu LTS, said, "Isn't the fact that this law was introduced really because we did something wrong?" He pointed to the industry's responsibility for recurring problems such as low-cost dumping tours, abandoning tourists, and lending the names of designated travel agencies. He called not only for lower commissions but also for tougher penalties against companies that lend their names and for violations to be reported to Chinese outbound travel agencies and tourism authorities.

During the open discussion, some also warned that indirect transactions through non-designated agencies could increase if the commission cap applied only to designated travel agencies. One travel agency representative said Chinese outbound travel agencies might divert tourist groups to non-designated agencies to avoid the regulation. Others said duty-free shops should verify whether the travel agencies bringing in tourist groups have designated status and monitor payments such as commissions and advances to non-designated agencies.

On the first day of visa-free entry for Chinese group tourists last year, Chinese cruise tourists who arrived at the Incheon Port International Cruise Terminal in Yeonsu-gu, Incheon, are heading to buses. Yonhap News.

In response, the Ministry of Culture, Sports and Tourism said it was considering amending the law to penalize both agencies that lend their names and those that use them, and to recover any unjust gains resulting from such arrangements. Under the existing guidelines, the designation of a travel agency found to have lent its name was revoked. The ministry now intends to establish a legal basis for holding accountable the company that borrowed the name and actually operated the tourist group as well. The ministry said it plans to pursue the relevant legal amendments next year.

However, the direct target of administrative sanctions under the shopping commission regulation is the designated travel agency, not the duty-free shop. The ministry said duty-free shops also need procedures to verify the status of travel agencies bringing in tourists and asked the duty-free industry to cooperate. Regarding the legal responsibility of duty-free shops, it said the relevant laws and supervisory authorities would need to be considered together.

Kim Hyeongjong, a research fellow at the Korea Culture and Tourism Institute who delivered the day's keynote presentation, characterized low-cost group tours as a structure resembling "bait pricing," in which tour package prices are lowered and costs are recouped through shopping revenue. He said common regulations were necessary in a market where individual travel agencies would find it difficult to reduce their reliance on shopping on their own. However, because it is difficult to calculate an appropriate commission rate precisely, he proposed introducing a cap first, then adjusting it in stages after observing market changes.

The Ministry of Culture, Sports and Tourism plans to prepare a draft amendment to the enforcement rules after reviewing requests raised at the debate, including calls to extend the grace period. The final draft will be settled after a legislative notice period, consultations with relevant ministries, regulatory review, and examination by the Ministry of Government Legislation. The amended Tourism Promotion Act is scheduled to take effect on December 3, but the effective date of the enforcement rules setting the commission rates could be delayed depending on the legislative process.

A ministry official said, "The opinion raised most often at today's debate was that the grace period is too short," adding, "As the draft proceeds through the legislative notice period, consultations with relevant ministries, and regulatory review, we will consider the industry's views and decide whether to revise it."

This content was produced with the assistance of AI translation services.