Special Excise Tax on Cars to Decrease within This Week

Starting from the nest week at the earliest, special excise tax on cars will be reduced.

While vehicles of below 2,000cc displacement will be entitled to a small tax cuts, cars of over 2,000cc will benefit from remarkable tax cuts. This tax cuts will also lead to considerable decrease of car price. By an estimate, 1.15 million won will be cut off from the price tag on SM 525V, 1.19 million won on Grandeur S 2.5, 2.3 million won on BMW 530i, and 2.47 million won on Equus JS350.

The Ministry of Finance and Economy (MOFE) announced yesterday that it would present a reform bill on special excise tax on cars to the National Assembly within this month. The Ministry plans to implement the tax relief measure once the bill is passed into law.

“At the last year`s conference on US-ROK trades, there was an agreement that Korean special excise tax system should be simplified from three to two stages”, said Kim Young-ryong, head at the taxation department of MOFE. He also explained, “It was supposed to be implemented from next year, but determined to be enacted ahead of schedule.”

He added to say, “benchmark displacement and readjusted tax rates are yet to be determined, but tax rates will be cut on cars in all sizes.”

Additionally, he implied the possibility of retrospective application of a new tax policy, saying, “It would make no difference in tax payments for car buyers whether they buy one now or later.”

According to current taxation, special excise tax is 7% of a factory price for a car with displacement between 800 and 1,500cc (the percentage will grow to 10.01% when education and value-added taxes included). The tax rate is 10% for a car between 1,500 and 2,000cc (14.3% when VAT included), and 14% for a car beyond 2,000cc (20.02% VAT included).

The Korea Institute of Public Finance (KIPF) in early this year proposed a tax readjustment of 7% on cars below 1,600cc and 11% on cars beyond 1,600cc.

Upon the proposal, Lee Jong-gyu, a taxation consultant at MOFE, said that “Review process is underway as tax rates can go up on some of cars when applying the KIPF`s theory.”

The government decided to implement the new tax policy ahead of schedule since a growing number of people have recently put off their car purchasing plans until next year, thereby raising concerns over reduction in car sales and concomitant slowdown in local economy.

Yet, the MOFE publicly declined another tax cut plan on PDP TVs and air conditioners.

Kwang-Am Cheon Na-Yeon Lee iam@donga.com larosa@donga.com