The South Korean government is reviving a temporary tax break for domestic car purchases in hopes to aid sagging domestic demand and struggling car industry amidst spread of protectionism on the trade front.
Under the administrative order passed by the government Tuesday, the special consumption levy on passenger cars beyond compact size including SUV and RV vehicles will be brought down to 3.5 percent from 5 percent for shipments from July 19 to the end of this year.
Consumers that wish to receive tax refunds will have to declare to the National Tax Service or Korea Customs Service by October 5 and submit attached documents such as car invoice, inventory confirmation document, or tax refund document.
The finance ministry said that the latest plan to lower individual consumption tax on cars comes as part of efforts to boost domestic spending in the remaining year and provide benefits to consumers and small and mid-size component suppliers.
The ministry projected the latest move will help boost domestic spending this year by 0.1 to 0.2 percentage points and gross domestic product by 0.1 percentage point.
The tax cut will be subject to Presidential Decree and will be applied retroactively from July 19.
The tax benefit lowers the final price tag and can bolster sales. A 20 million won ($17,896) car will be 430,000 won cheaper and a 25 million won car will be reduced by 540,000 won.
The government cut sales tax on cars between August 2015 and June 2016 after extending the half-year program by another six months to help the economy. The tax benefit led to more than 7 percent increase in monthly car sales.
By Cho Si-young and Lee Eun-joo
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