Industry Cheers Extension of Tax Support for Hybrid Cars... Calls for Further Increase

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is speaking while presiding over the 19th Innovation Growth BIG3 Promotion Meeting held at the Government Seoul Office on the morning of the 24th.

[Asia Economy Reporter Choi Dae-yeol] The government has decided to extend tax support measures, including individual consumption tax reductions, for hybrid vehicles by 2 to 3 years, prompting a positive response from the automotive industry. Since it will inevitably take a considerable amount of time to transition to a stage with zero carbon emissions, there is a need for a buffer mechanism at the intermediate stage. Some argue that tax support should be further increased to give the parts industry time to adapt to vehicle electrification.

Kim Joo-hong, Head of Policy Planning at the Korea Automobile Manufacturers Association, said on the 24th, "The individual consumption tax reduction for hybrid vehicles has been extended in three-year increments in the past, but recently it has been extended on a one-year basis. We have consistently requested the extension of tax support for hybrids to maintain the existing parts industry ecosystem while transitioning to electrification."

On the same day, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, announced at the Innovation Growth Big 3 Promotion Meeting that the government is considering extending tax support, including individual consumption tax reductions for hybrid vehicles, until around 2025 and 2026. Originally, the tax benefits were scheduled to end last year but were extended by one year, with benefits planned until the end of this year. The government plans to revise the support and classification system for low-emission vehicles, including hybrids, over the next 2 to 3 years.

Currently, hybrids are the best-selling eco-friendly vehicles. Last year alone, 242,570 units were sold. Especially in the first half of last year, about 15,000 units were sold monthly, increasing to the mid-20,000s in the second half. This is interpreted as being influenced by the impending expiration of the individual consumption tax support for hybrid vehicles.

Cluster of Hybrid Vehicles

Among domestically produced finished vehicles sold in Korea last year, eco-friendly vehicles accounted for about 16%, with two out of every three eco-friendly vehicles being hybrids. Among imported cars, hybrids accounted for one-third of all types, including gasoline, diesel, and electric vehicles (including plug-in hybrids). Volvo sold only hybrid models last year, and Japanese brands such as Toyota and Lexus also have a dominant hybrid share. Although somewhat more expensive than conventional internal combustion engines, many drivers appreciate the lower maintenance costs and improved driving performance. Another advantage is the lack of concern about charging infrastructure.

The Ministry of Environment and others have expressed negative views on extending tax support for hybrid vehicles, but related industries and other ministries have argued for the necessity of extension, leading to a consensus to extend it by 2 to 3 years. A representative from the automotive industry said, "Since hybrids play a sufficient role as an intermediate step toward electric and hydrogen vehicles, this policy is welcomed."

Considering the pace of charging infrastructure expansion, the industry expects it will take several more years to fully transition to zero-emission vehicles such as electric and hydrogen cars. To foster an eco-friendly vehicle ecosystem, there are calls to guarantee tax benefits from a long-term perspective rather than extending them in 2 to 3-year increments, and to activate direct support such as research and development.

An industry insider said, "Even if tax benefits for hybrids disappear at some point according to government plans, the current level of tax benefits should be maintained without gradual reduction until then. This is because parts companies centered on existing internal combustion engines need time to respond to electrification through hybrids to maintain the parts ecosystem and employment before fully transitioning to electrification."

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