[Reporter’s Notebook] Is Halting Hybrid Car Tax Reductions the Best Choice?

(Photo by Asia Economy)

[Asia Economy Reporter Kiho Sung] Recently, a single remark by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki has turned the complete vehicle industry upside down. He announced that LPG (liquefied petroleum gas) and CNG (compressed natural gas) vehicles will be excluded from the 'low-emission vehicles' category starting in 2024, and hybrid vehicles will be excluded starting in 2025 or 2026. This means that from two to three years later, tax reductions and other benefits will be limited exclusively to electric and hydrogen vehicles.

Currently, purchasing a hybrid vehicle can provide tax reductions of up to 1.83 million KRW, including acquisition tax reductions of up to 400,000 KRW and individual consumption tax, education tax, and VAT reductions totaling up to 1.43 million KRW. LPG vehicles also receive purchase subsidies, but only for cargo vehicles (1 million KRW) and children's school buses (3.5 million KRW).

Subsidies and tax benefits for electric vehicles and hybrid vehicles are strong incentives for purchase. This was confirmed last year when tax benefits for plug-in hybrid electric vehicles (PHEVs) were discontinued, resulting in zero PHEV sales in the first quarter of the same year.

The government emphasizes that the discontinuation of tax support for LPG and hybrid vehicles is intended to accelerate the transition to the electric vehicle era. However, the complete vehicle and parts industries, which lack sufficient preparation time for the removal of policy support, as well as consumers losing tax benefits, inevitably feel unsettled. In particular, there is a unified voice that the timing of excluding hybrid vehicles, which have a large sales share, is too early. According to the Korea Automobile Manufacturers Association (KAMA), among eco-friendly vehicles sold domestically by Korean automakers last year, 6.5 out of 10 (64.5%) were hybrid vehicles. Hybrid vehicles are not zero-emission vehicles like electric or hydrogen vehicles. However, the reason they have been recognized as eco-friendly vehicles until now is based on a report by the International Energy Agency (IEA) stating that when including all processes such as electric vehicle battery manufacturing, the carbon emissions of hybrid and electric vehicles are similar.

The government aims to be the number one country in future vehicle competitiveness by 2030. If the government's future vehicle blueprint focuses on electric and hydrogen vehicles, hybrid vehicles will serve as a stepping stone toward achieving the top future vehicle competitiveness. Reducing tax support for hybrid vehicles is no different from dismantling the stepping stone before reaching the goal. This is why more flexible government policies are needed for the future vehicle era.

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