SEOUL, Aug. 21 (Korea Bizwire) — A South Korean lawmaker is seeking a law revision aimed at levying taxes on vehicles based on their prices instead of displacement volume, a change that could result in a hike in taxes on many high-end foreign brands, industry sources said Friday.
Currently, South Korea levies vehicle taxes based on displacement volumes, causing higher-priced foreign brand owners to pay less than local counterparts just because they are in the same displacement class.
Critics have demanded the current “retrogressive” situations in taxation for cars be rectified. Some say that the current law enacted five decades ago needs to be reformed to reflect the latest market situations.
Rep. Shim Jae-chul of the ruling Saenuri Party is crafting a revision law intended to tax vehicle taxes based on their prices. The revision will likely to be submitted to the National Assembly “soon” along with some other lawmakers’ names on it.
“The current volume-based system does not make sure fair taxation,” Shim said. “A change needs to be made in a way to reduce taxes for low- and mid-priced vehicles and raise taxes on expensive vehicles.”
Under the current law, BMW 520d owners pay almost the same amount of vehicle taxes as those driving such local brands as Hyundai Motor’s Sonata midsize as they are in the same segment. The price of the German vehicle is about three times higher than the Korean car.
High-priced electric vehicles are also subject to relatively low taxes as they are categorized as “miscellaneous” since they do not have any combustion engines.
Demand for a change in car taxation has been growing amid an intensifying foray of foreign brands, which are chipping away at long-held market dominance by Hyundai Motor and Kia Motors, two homegrown auto giants.
The latest data showed that sales of imported cars in South Korea jumped 14.3 percent in July from a year earlier to 20,707. The two Korean carmakers held a combined 68.9 percent in Korea in July, but some worry that aggressive marketing by foreign car brands would undercut their market dominance in the years to come.
Foreign car brands remain cautious about the possible change, saying that it is too early to respond. But they expressed concern that it could have a negative impact on business here by imposing more taxes on their brand owners.
“At a time when the vehicle prices tend to increase as a whole, it might not be a matter of foreign brands or local brands. Still foreign brands worry that they could be singled out for a higher tax burden as a result of the change, given that their high-end models are quite expensive,” an industry source told Yonhap News Agency.