S Korea May Restructure Domestic Car Taxes To Spur Demand

SEOUL July 3, 2003; Dow Jones reported that to spur domestic auto demand, the South Korean government may implement new excise tax rates for cars ahead of schedule, said the Ministry of Finance and Economy Thursday. The government didn't say when the new tax rates will go into effect, but said it will try to decide on the matter "as early as possible" to avoid a further contraction in the local automobile market. South Korea has struck an agreement with the U.S. to reduce the types of automobile tax rates to two from three by the end of this year.

They haven't yet finalized the new rates, but the simpler tax system will eventually mean lower taxes on cars with engines of 2,000 cc and above.

"The announcement of the government's plan to adjust the tax rates later this year prompted consumers to delay buying cars which was a blow to the domestic auto market," said the ministry.

Under the current tax system, the government levies a 7% special consumption tax on cars with engines under 1,500 cc; 10% on cars with 1,500-cc to 2,000-cc engines; and 14% on 2,000 cc and above.

Industry watchers believe the new tax system could go into effect as early as the end of July if an extraordinary session of the National Assembly can convene to ratify the bill.

In June, South Korea's five carmakers saw their combined domestic sales decline by 14% on year to 101,863 units.