Revise the tax code on cars

Import cars have become a hot potato at parliamentary questioning. At the National Assembly’s regular audit of the government, lawmakers claimed that the owners of imported luxury-brand cars were registering their vehicles under corporate names to pay less taxes. They also insisted that it was unfair to levy the same annual automobile ownership tax based on engine displacement for both imported and local brands.

The arguments both have strong points. About 87.4 percent of foreign cars costing more than 2 million won ($170,721) were registered last year for business use. The current law recognizes car purchases for business use as expenses. But owners are abusing the law and enjoying the tax benefits as a result. Many of the luxury cars caught for speeding or drunk driving at night weren’t owned by their young drivers, but rather the companies of their fathers.

Tax deductions for cars registered for business purposes by companies and self-employed business owners totalled 8.5 trillion won in 2013, posing a serious threat to the government’s tax revenues. The government must consider toughening the guidelines on business expenses by setting a strict cap when it proposes a tax code revision next year.

A more delicate approach to auto taxation is also necessary. It is unfair for owners of foreign luxury cars and local brands to pay the same tax for their cars. The owner of a Hyundai Sonata with a 1,999 cc engine pays the same 400,000 won annual tax as the owner of a BMW with 1,995 cc that is triple its price.

An automobile tax should be considered a kind of property tax levied according to the value of the home. For instance, the purchase and registration taxes people pay for their new cars are levied according to the car value.

The tax rate based on engine capacity also does not reflect the changing times and technology advances. Size no longer determines a car’s value. Today’s cars are designed with smaller displacements to burn less fuel or run a hybrid engine. Electric cars are also advancing fast. The tax code on automobiles should be revised to keep abreast of the times.

But the tax revisions should not be sought to differentiate foreign and local brands, as such an approach could trigger trade friction with Europe and the United States. Instead, the tax code should be revised to accelerate technology advances and competition and not just to protect and aid the local auto industry. We could benchmark the European Union and Japan, which provide tax incentives for cars that emit less carbon.

JoongAng Ilbo, Sept. 17, Page 34