[Sejong=Asia Economy Reporter Joo Sang-don] The government is deliberating over whether to extend the 70% reduction benefit on the individual consumption tax for passenger cars, which is set to expire next month, as well as adjusting the reduction rate. The related details are expected to be included in the second half economic policy direction to be announced in early next month.
On the 25th, a senior official from the Ministry of Economy and Finance stated regarding the passenger car individual consumption tax, "Nothing has been finalized yet," while drawing a line, but also said, "We are conducting in-depth reviews on three options."
The three options under review by the Ministry of Economy and Finance are ▲ extending the 70% reduction period for the passenger car individual consumption tax until the end of the year ▲ not extending and ending as scheduled at the end of June ▲ lowering the reduction rate.
The official explained, "There are various opinions such as stopping the extension because the policy effect of the tax reduction is diminishing, or that if the tax reduction is not extended, sales will sharply decline," adding, "We plan to review various positions and opinions, make a decision, and include it in the economic policy direction."
The automobile industry insists that an extension is essential as an increase in sales due to the tax reduction has been confirmed. According to the Ministry of Trade, Industry and Energy, domestic sales in March this year recorded 172,956 units, a 10.1% increase compared to the same month last year. In April, 167,375 units were sold, an 8% increase. This contrasts with January and February this year, when domestic sales decreased by 14.7% and 18.8%, respectively. Based on this, at the end of last month, the Korea Automobile Manufacturers Association (KAMA) requested the government to extend the individual consumption tax reduction until the end of the year along with a reduction in acquisition tax.
However, there are also concerns that the policy effect may diminish as the tax reduction has been in place for nearly two years. It is argued that those who intended to purchase cars during the tax reduction period have already done so, resulting in less future demand.
The government had reduced the individual consumption tax on passenger cars from 5% to 3.5%, a 30% reduction, for one and a half years from July 19, 2018, until the end of last year. Then, at the end of February, through the "Comprehensive Measures for Livelihood and Economy to Minimize the Impact of COVID-19 and Achieve Early Recovery," the individual consumption tax on passenger car purchases was reduced by 70% from 5% to 1.5%, up to a limit of 1 million KRW, until the end of June.
The government appears more cautious regarding the automobile industry's request for acquisition tax reductions. In response to media reports that the government is considering partially reducing acquisition tax through national subsidies to revitalize domestic automobile sales, the Ministry of Economy and Finance clarified in a statement that "the claim that the government is considering partially reducing automobile acquisition tax through national subsidies is not true."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
