Illogical tax breaksThe government will implement tax cuts for consumers who replace their old cars with new ones. It will offer a 70-percent cut in the individual consumption tax, and in registration and acquisition taxes. Although the exemption depends on the car model, consumers will enjoy exemption benefits worth a maximum of 2.5 million won [$1,860] - the consumption tax of 1.5 million won and the acquisition and registration taxes of one million.
Although the government justifies tax support under the pretext of environmental protection, the measure is in reality exclusively designed for supporting car makers. Customers will be the first to enjoy tax cuts, but the primary aim is to boost sales of new cars and invigorate flagging domestic sales at home.
The government will also explore the following additional support measures: direct payment subsidies for changing to a new car; formation of a fund worth 1 trillion won for component materials; support to boost liquidity for capital companies with installment-based payment options; and green car development loans.
Given that many countries are providing support to their core industries during the worldwide economic recession, we are also planning to bolster the development of Korean industries.
However, it is illogical to insist that Korea should also back its carmakers to the hilt, as other countries do.
First, the companies are not facing a serious management crisis like the big major U.S. and European car manufacturers. Rather, Korean carmakers are extending their share of the market thanks to the weak won.
In other words, the situation is not so critical as to require immediate government attention.
Support measures will be a part of precautionary programs to prevent the automobile industry from taking a sudden turn for the worse, as it will likely have a huge impact on creating jobs. If so, the government needs to devise a system that offers support to specific areas of industries rather than supply a support package in the form of tax cuts.
Above all, the industry’s self-rescue effort should be a significant prerequisite for government support for the automobile industry.
The industry should also spare no effort to bolster its own development to win public support. The industry should create a self-rescue effort first of all, such as reducing staff and salaries, before asking the government for help.
It would be against the principle of equity if the car industry continues to enjoy its current advantages and overcomes the recession by drawing on the national funds.
Carmakers are not the only ones hit by hard times.