Consideration of Extension for Car Acquisition Tax Reduction... Up to 70% Mentioned

Domestic Demand Hit Inevitable Due to COVID-19 Resurgence... Expecting Consumption Stimulus Effect

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government is considering extending the individual consumption tax reduction benefit for automobiles, which is set to expire at the end of this year. The plan is to increase the reduction rate from the current 30% to up to 70% and extend it for 3 to 6 months.

When purchasing a passenger car, a 5% individual consumption tax (ICT), an education tax (30% of the ICT amount), and value-added tax are applied. The government has implemented ICT reduction policies to stimulate consumption. From July 19, 2018, until the end of last year, the ICT on passenger cars was reduced by 30%, from 5% to 3.5%. This year, through the comprehensive COVID-19 response measures for livelihood and economy at the end of February, the reduction rate was raised to 70% until the end of June, applying a 1.5% ICT. From July, the ICT reduction rate was lowered back to 30%, applying 3.5%, but the 1 million KRW limit was removed.

The government believes that extending the ICT reduction benefit, which is scheduled to end this month amid the inevitable domestic demand impact due to the resurgence of COVID-19, will help increase consumption.

In fact, domestic sales of Korean passenger cars increased after the ICT reduction rate rose from 30% to 70% in March but temporarily decreased after it was lowered back to 30% in July. Domestic sales of Korean passenger cars decreased by 15.7% in January and 24.6% in February compared to the previous year, then rose consecutively in March (13.2%), April (11.6%), and May (14.0%). In June, just before the ICT reduction benefit was scaled back, sales surged significantly by 44.9%. Afterward, the growth rate declined to 11.7% in July and turned negative at -6.0% in August.

As the government has repeatedly implemented the passenger car ICT reduction policy, some argue for its complete abolition. However, the government remains reluctant to fully abolish it due to the burden of reduced tax revenue.

The government’s analysis indicates that expanding the ICT reduction rate to 70% for three months could reduce tax revenue by nearly 500 billion KRW.

Along with the passenger car ICT reduction, the government plans to resume rebates for energy-efficient home appliances. The energy-efficient appliance rebate policy offers a 10% discount on the purchase price, up to 300,000 KRW, when buying energy efficiency grade 1 products such as TVs, refrigerators, air purifiers, air conditioners, and washing machines.

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