Korea reviews extension of 30% tax cut for new car purchases until the end of 2022

[Photo by Yonhap]

South Korea is expected to grant cut in consumption tax on new cars for another six months until the end of the year to not further upset depressed spending due to high inflation.

According to the Ministry of Economy and Finance on Sunday, the government will announce various measures including a plan to push back the sunset date on sale tax incentives for new car purchases from the end June to the end of the year.

¡°The government will promptly come up with measures to stabilize the livelihoods of the public in consultation with related ministers and departments,¡± Choo Kyung-ho, finance minister and deputy prime minister for economy, said last week.

Sales tax, education tax, and VAT are levied when a new car is bought. The individual sale tax was cut 30 percent to 3.5 percent from 5 percent between July 2018 to December 2019. The rate came down further to 1.5 percent in the first half of 2020 at the onset of Covid-19 outbreak. The levy was raised to 3.5 percent and was to be normalized to the original rate of 5 percent from July.

A 30-percent tax cut can save a new car buyer up to 1.43 million won ($1,127) - 1 million won in individual consumption tax, 300,000 won in education tax, and 130,000 won in value-added tax.

The extension of the tax incentive would be a part of the measures to stabilize prices and livelihood amid inflation nearing 5 percent.

Seoul will proceed with its previous plans to subsidize 70 percent of the price increase of flour and expand fuel subsidies for truck and taxi drivers. Tariff-rate quotas for processed products as well as agricultural and fishery products that directly impact living prices will be also expanded, while lower duty on imports of cooking oil will also be applied in addition to the one on soybeans.

The government will also aim to limit price hikes by improving distribution networks in the mid to long term.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]