South Korea’s new government is reviewing margin scheme taxation on used car dealers, galleries and antique retailers, a move that is expected to allow the government to collect additional tax worth more than 1 trillion won ($890 million).
According to the President Moon Jae-in administration’s advisory committee for state affairs and the Ministry of Strategy and Finance on Wednesday, the government will decide whether to introduce marginal scheme taxation in the secondhand car, artwork trading and antique markets by the end of this month after comparing the new taxation with the deemed input tax credit system that is currently applied to the industries.
The margin scheme taxation system will tax the difference between the initial price the seller paid for an item and the price the seller later sold for. For example, the car dealer who bought a used car at 5 million won and sold it later at 6 million won would have to pay a value-added tax (VAT) on the gain of 1 million won. So far, the government has guided secondhand trading businesses to pay VAT at a certain rate set by the government due to ambiguity of purchasing prices that are easy to manipulate in their financial books.
The new scheme, which is already widely used in some countries such as the United Kingdom and Germany, is expected to enhance transparency in secondhand goods and arts trading in Korea and help establish more fair prices for used cars, artworks and antiques, on top of the collection of additional tax from the secondhand retail and art industries.
An unnamed government official said the government amended the tax law last year to include used cars, artworks, and antique trading businesses in the category that should mandatorily issue cash receipts, a step that would further aid the government’s effort to adopt the new margin scheme taxation in those industries. The country’s used car owners are also known to have demanded the government to introduce the margin scheme taxation in hopes of enhancing transparency in the business.
By Cho Si-young and Kim Se-woong
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]