The so-called Border Adjustment Tax (BAT) President Donald Trump and House Republican leaders are pursuing to introduce hefty levy on imports from all countries from as early as the second half of next year while deducting tax on exports to promote American manufacturing could send production cost and tax burden up sharply for Korean operations in the U.S.
The border adjustment tax is part of a tax reform plan of the Trump administration, which would make the cost of imported goods no longer tax-deductible while making exports tax-exempt. According to sources from the accounting industry on Sunday, under the new tax scheme, Korea’s largest car maker Hyundai Motor Co. would have to pay more than 2 trillion won ($1.8 billion) in additional tax to the U.S. government.
A recent study done by an American market researcher Baum & Associates LLC suggested that the Korean automaker would have to raise its vehicle retail prices by $2,704 per car to compensate for the higher tax burden as companies that import products and sell them in the U.S. would pay more taxes under the adjustment code. Hyundai imports parts used for the cars sold in the U.S. Ford Motor that does not rely that much on imported parts would only pay $282 under the new tax code.
As Hyundai Motor sells around 740,000 vehicles in the American market a year, it would have to pay 2.2 trillion won or $2 billion in additional tax under the adjusted system. The tax burden is tantamount to 42 percent of its operating profit of 5.2 trillion won last year.
The border adjustment tax is proposed by Republican lawmakers as means to cover the fiscal losses from tax cuts pursued by Trump. It is pitched as to level the playing field for U.S. products against competitors as its trading partners use a value-added tax that taxes U.S. goods and services while subsidizing their own exports.
By Kim Dae-gi and Chun Gyung-woon
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