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| gettyimagesbank |
By Yoon Ja-young
Consumption tax levied on domestic passenger cars will be lowered from July, which will in turn pull down consumer prices. It follows an overhaul in taxation which has been disincentivizing the purchase of domestic cars in favor of imported cars.
Currently, consumption tax is applied to prices including distribution cost and margin in the case of domestic cars, as tax is levied when the cars leave the factory to be purchased by consumers. As imported cars have tax applied at the time of import clearance, distribution cost and margin, which come after the import clearance procedure, are not included when applying tax.
It thus triggered a controversy that people who wish to purchase domestic cars are facing "reverse discrimination" in terms of taxation. According to Korea Economic Research Institute, a domestic car sold at 60 million won ($46,000), for instance, is levied 3.67 million won in tax, while an imported car of the same price faces 2.65 million won in tax.
To make up for the difference, the National Tax Service (NTS) decided to change the taxation method, applying tax to 82 percent of the domestic car prices. In the case of a car that comes with a 42 million won price tag from the factory, for instance, tax will be applied to 34.44 million won instead of 42 million won. As a result, tax on the 42 million won car will be lowered by 540,000 won, which will pull down consumer prices by the same amount.
In the case of a Kia's Sorento, which comes with a 40 million won price tag, tax will be slashed by 520,000 won, and Renault Korea's XM3, priced at 23 million won, will see a tax cut of 300,000 won. A 330,000 won lower tax will be levied on GM Korea's Trailblazer, priced at 26 million won.
"On top of enhancing equity in taxation, the measure will enable domestic cars to compete on a level playing field," the NTS noted.
The NTS collected 930.8 billion won in consumption tax from those who purchased domestic cars in 2021. The consumption tax on imported cars, meanwhile, amounted to 474.8 billion won.
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