Special Consumption Tax Removed on 24 Items

2. Special Consumption Tax Removed on 24 Items

Special excise taxes on items that have been considered as luxury items and that have been taxed heavily, such as golf clubs, expensive watches, furniture, and air-conditioners, are expected to be exempt from excise taxes starting from mid-September at the earliest, and their prices will be lowered significantly as a result.

The government and the Uri Party agreed on Wednesday in a government and party council meeting to completely remove excise taxes on 24 out of a total of 32 items liable for this tax. Items such as passenger cars and oil, as well as luxury “services”—horse racetracks, bicycle racetracks, casinos, slot machines, golf courses, and entertainment restaurants—are excluded from this exemption.

In order to reduce confusion in the market that may be caused by the announcement of the special consumption tax removal on these items, the council decided to apply the resulting lowered prices retroactive to when the revision proposal passes the Finance and Economy Committee after being submitted to the National Assembly at lawmaker Kim Jin-pyo’s suggestion.

The items that will be exempted from the special consumption tax include air conditioners, gaming and entertainment tools, golf equipment, hunting guns, motor boat/yachts, luxury watches, furs costing two million won or more, expensive camera/film projectors, antler/royal jelly, perfume, and luxury furniture, as well as high-tech items like projection TVs and PDP TVs. The special consumption tax rates on these 24 items range from 0.8 percent to 14 percent. For example, the special consumption tax on air conditioners is 11.2 percent and on golf clubs, 14 percent.

Hong Jae-hyung, the policy board chairman of the Uri Party, said, “The excise taxes imposed on vehicles and all kinds of oils are excluded because their shares in the government tax income are big and by rule, the users should be responsible for the pollution caused by using these facilities.”

On the same day, the council also confirmed other tax reductions: a 1.0 point cut in income tax for employees and entrepreneurs; a 1.0 point cut in the withholding rate for interest and dividend earnings; and expanding the special tax reduction or exemption for small- or mid-sized businesses to 20-30 percent.

Consequently, next year’s tax revenue is expected to shrink by approximately two trillion won in total, including a 300 billion won decrease from the special consumption tax removal, a one trillion won decrease from lowered taxes on income and interest/dividend withholdings, and a 400-500 billion won decrease from special tax benefits for small- or mid-sized companies. A government bond issue, which was originally planned to be on a scale of 2.5 trillion won, is expected to increase to over seven trillion won as a result.

Meanwhile, the council expressed its stance to maintain the current oil tax, saying, “We will urge the government to lower the oil tax when the international oil price is raised even higher and stays high for a significant period. Still, it does not mean to enforce it right away.”

Hoon Lee dreamland@donga.com