"From July, Grandeur Tax Burden Increases by 360,000 Won... Car Individual Consumption Tax Reduction Ends This Month"

The government will end the individual consumption tax reduction measure on automobiles as scheduled at the end of this month.

On the 8th, the Ministry of Economy and Finance announced that the flexible tax rate system for the individual consumption tax on automobiles will end on the 30th. The government explained, "Recently, the automobile industry has shown a favorable trend and consumer conditions have also improved," adding, "Considering this, the system is evaluated to have achieved its policy purpose as a domestic demand stimulus measure in response to COVID-19."

Previously, the government began the individual consumption tax reduction on automobiles in July 2018. At that time, the individual consumption tax, which was 5% of the retail price of passenger cars, was reduced by 30% to 3.5%. The tax reduction limit was 1 million KRW, and if the limit was fully utilized, consumers could reduce related taxes by up to 1.43 million KRW, including 1 million KRW in individual consumption tax, 300,000 KRW in education tax, and 130,000 KRW in VAT.

Some expected the government to extend the individual consumption tax reduction measure further to stimulate consumption and revitalize domestic demand, but with the measure ending as planned, it is seen that the impact of tax revenue shortages this year, including corporate tax and property tax, played a role.

On the 19th, the Hyundai Motor Kona Electric was exhibited at the '2023 World IT Show' held at COEX in Gangnam-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Separately, from the 1st of next month, the 'Special Calculation Method for the Tax Base of Individual Consumption Tax' will be implemented, reducing the individual consumption tax on domestically produced passenger cars, which had been relatively higher compared to imported passenger cars.

The Ministry of Economy and Finance explained, "In the case of the Grandeur with a retail price of 42 million KRW, the restoration of the individual consumption tax to 5% raises the purchase price by 900,000 KRW, but the reduction in the tax base lowers it by 540,000 KRW, so the actual price increase is limited to 360,000 KRW."

Additionally, considering the 100% exemption of individual consumption tax for eco-friendly vehicles and the tax reduction for passenger car purchases by multi-child families, the government added that even with the end of the flexible individual consumption tax rate application, the consumer burden will not increase significantly.

Meanwhile, the government decided to extend the temporary 15% reduction of the individual consumption tax on power generation fuels (LNG, bituminous coal), which was also scheduled to end this month, for an additional six months until the end of the year.