Government Set to Reduce Taxes on 1,600-cc Vehicles

Starting July of next year, the taxation ceiling for compact vehicles will be changed to include 1,600 cc in displacement from the current level of 1,500 cc. The annual auto tax on 1,600 cc automobiles will fall by about 30 percent.

The Ministry of Government Administration and Home Affairs and the Ministry of Commerce, Industry and Energy said on March 16 that they will revise the local tax code to categorize 1,600 cc vehicles as compact for automobile taxes which the government levies at 140 won per cc. Currently, vehicles with up to 1,500 cc displacements are classified as compact.

Auto taxes are levied as follows: 80 won per cc on subcompact vehicles with 800 cc less; 100 won per cc on vehicles with more than 800 cc and less than 1,000 cc; 140 won on vehicles with more than 1,000 cc and less than 1,500; midsize vehicles with more than 1,500 cc and less than 2000 cc; and 220 won on full-size vehicles with 2,000 cc and above.

“Local automobile manufacturers have been producing 1,600 cc vehicles for the international markets, but have to produce 1,500 cc automobiles exclusively for the local market,” said Kim Dae-young, local tax director at the Ministry of Government Administration. “We redefined the compact automobile to address this contradiction.”

Once categorized as compact next year, taxes on 1,600 cc vehicles will fall to 140 won from 200 won per cc. A yearly total will be reduced to 224,000 won from 320,000 won.

The government projects that the tax reductions will reduce R&D funds by 55 billion won.

However, the automobile industry will increase the burden on consumers by phasing out production of 1,500 cc vehicle for 1,600 cc ones. Yearly taxes for an average 1,600 cc vehicle is 14,000 won more expensive than 1,500 cc cars. The larger the engine, the more expensive the car will become. So will the price of the bonds, nine percent of the retail price, that consumers should buy when they purchase cars.

Ki-Jeong Ko Jae-Myoung Lee koh@donga.com egija@donga.com