SEOUL, March 10 (Korea Bizwire) – With restrictions on the accounting of vehicles for business use becoming stricter, the number of imported cars being used as corporate vehicles has dropped to a historic low.
Vehicles from brands such as Rolls-Royce, Bentley, Porsche, Jaguar, Lexus, Audi and BMW that were purchased as corporate cars and then surreptitiously used privately saw a year-over-year decline in February.
Industry watchers believe that increased taxation on business vehicles is responsible for the phenomenon.
According to the Korea Automobile Importers & Distributors (KAIDA), 15,671 imported vehicles were registered in February. Of the total, 5,332 units, or 34 percent, were purchased for business use.
The business use share of imported vehicles showed a slight decline of around one percent compared to figures for December 2015, which was the previous low.
Despite the low in December 2015, the actual number of corporate vehicles registered was still high. At 8,383 units, the tallied number was the third-highest monthly record. The share of corporate vehicles shrunk because the number of individual buyers who purchased imported cars increased suddenly as individual consumption taxes dropped.
However, the 5,332 foreign vehicles registered as corporate property in February represented the lowest number in the 26 months since December 2013. The share of corporate vehicles in the total number of imported cars plummeted due to the dramatic drop in sales.
The government’s new policy played a huge role in this outcome. To prevent private use of corporate vehicles and realize fair taxation, the Corporate Tax Act and the Income Tax Law were revised. Under new regulations, when a vehicle is purchased in the name of a corporation or individual business, the maximum amount that can be recorded as an expense is eight million won.
In addition, expenses over 10 million won (purchase prices and maintenance costs put together) can only be recognized when business use is proven through a vehicle log.
The restrictions seem to have been strengthened to levels of ‘suffocation’ compared to the previous practices, in which the purchase cost of the vehicle could be written off as an expense spread over five years, and maintenance costs were recognized as expenses without limits.
The effect of the government policy is also reflected in the numbers tallied in January (39.4 percent). For the first time, the share of corporate vehicles among the total number of imported cars dropped under 40 percent.
Considering that January is a month when corporations purchase many vehicles to provide to their new management staff, the downsizing of the pie shows the strong effect of the new government policy on corporate vehicle purchases.
One motor industry official commented that the government’s strict taxation policy has proven to be effective, as the number of ‘corporate vehicles on paper’ – private vehicles registered as corporate property for the purpose of writing off expenses – seems to be declining.
By Francine Jung (email@example.com)