A temporary tax relief in effect since July last year to stimulate car sales in Korea will be extended for another six months until the end of December.

During a policy coordination meeting with the ruling party, the Ministry of Finance and Economy officially proposed to stretch car sales tax break to December, making it in place for 18 months. The change will become final after cabinet approval.

The sales tax on domestic car purchases was cut from 5 percent to 3.5 percent in July last year for six-month trial. It was extended until June amid slow sign of recovery in domestic demand.

The vehicles subject to the 30-percent cut in individual consumption tax are passenger cars excluding 1,000-cc or below compact cars, camping cars, and above-125-cc two-wheeled vehicles.

Domestic car sales from July to December last year reversed to an average on-year growth of 2.2 percent from a 2.1 percent on-year fall in the previous six-month period following the introduction of a temporary tax break for car purchases in July.

Despite the relief, local carmakers were able to sell only 410,405 units from January to April, up a marginal 0.1 percent compared to a year earlier period.

The government fears the local industry could suffer more if the tax relief is removed.

It estimates local auto production has shrunk more than 10 percent, damaging the value chain. But if it deems little effect from the tax relief, the government won’t attempt further extension beyond this year.

Another six months of cut in sales tax for cars will shave tax revenue of about 100 billion won ($84.7 million).

By Lim Sung-hyun and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]