Exemption from Rural Special Taxes for Compact Cars Starting Next Year

Beginning next year, when you purchase a car with capacity below 800cc, the amount of imposed taxes will decrease by nearly 70,000 won.

Also, the amount of succession and gift taxes on unlisted stocks will increase greatly.

On December 17, the Ministry of Finance and Economy (MOFE) announced that it prepared a “2004 Tax Law Enforcement Decree Reform Bill” with such contents. After passing the bill through a cabinet meeting, it will be enforced beginning January 1.

Rural Special Tax Exemption for the “Matiz”-

The government has exempted compact cars of under 800cc from acquisition and registration taxes of four percent of the price (excluding value-added taxes) and levied rural special taxes of 0.8 percent.

However, starting next year, the government has also decided to exempt rural special taxes.

Consequently, beginning next year, those who purchase a GM Daewoo Matiz will pay 69,600 won less in taxes.

Though this tax reform bill decreases the amount of taxes by only 70,000 won, when one takes into account the high oil prices and the long-term economic depression, as consumers tighten their belts, the demand for compact cars is expected to rise.

Heavier Tax Burdens for Succession and Gifts of Unlisted Stocks through Expedients-

Beginning next year, the expedient of willfully devaluating unlisted stocks to decrease succession and gift taxes will be harder to employ.

When evaluating the value of unlisted stocks to calculate succession and gift taxes, the government has considered the company’s profits, losses and asset situation.

Consequently, a portion of the rich has bought unlisted company stocks and used the expedient of succeeding or giving the stocks away when the company was suffering losses.

However, the government has decided to valuate corporations that have not commenced yet, corporations with less than three years of business, and corporations with three consecutive years of deficits by asset value only.

Director General for Property, Consumption and International Tax Affairs of MOFE Gwon Hyuk-se said, “Through this measure, owners of unlisted companies who use periods of difficulty to hand down stocks to their children or those who purchase stocks of unlisted companies and give them to their children will find a much heavier tax burden.”

Reinvigoration of the Cash Receipt System-

The MOFE has decided to hold a cash receipt lottery to reinvigorate the cash receipt system that will be introduced next year.

Each month, they will draw serial numbers of cash receipts and pay 100 million won to the first place winner, 30 million won to two respective second place winners, five million won to three respective third place winners, 100,000 won to 100 respective fourth place winners, and 10,000 won to 7,000 fifth place winners.

Along with this, the government has stipulated in the enforcement decree that even businesses that do not receive credit cards or give out cash receipts are available for tax investigation.

In addition, as a solution to the problem of people with poor credit ratings has not been found, the exemption of collection service businesses from value-added taxes has been extended from this year’s end to the end of next year.

Chi-Young Shin higgledy@donga.com