Consumption tax cut again to boost car sales

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Consumption tax cut again to boost car sales


The government decided to lower the individual consumption tax on cars once again to boost the economy after seeing sales of automakers drop significantly last month following the end of a temporary tax reduction in December.

The Ministry of Strategy and Finance announced Wednesday that it will lower the tax on cars from 5 percent to 3.5 percent starting immediately and will maintain the policy through June. People who purchased cars between Jan. 1 and Tuesday will receive tax refunds to share the benefit.

The ministry said the decision came out of discussions with other government agencies, including the Ministry of Trade, Industry and Energy and the Financial Services Commission, after local consumption fell last month.

A reduction in the tax on cars helped boost sales from last August to December.

“We decided to lower the tax to boost local consumption,” said Lee Chan-woo, director general of economic policy at the Finance Ministry. “Last year, the tax on large electronic appliances was lowered, but that sector has not been included this time.”

Sales of the nation’s five automakers were directly impacted when the tax benefit lapsed last month. Leading automaker Hyundai Motor said earlier in the week that it only sold 49,852 units last month, a 39.2 percent drop from December’s 82,060 cars. Sales of Hyundai’s sister company, Kia Motors, during the same period dropped by 27.8 percent from 53,330 to 38,505 units. Renault Samsung Motors had a terrible month, with local sales plunging by 79.5 percent from 10,235 units to 2,101. GM Korea and Ssangyong Motor also saw similar falls. The five automakers sold a total of 106,308 units last month, a 39.8 percent drop from December and the lowest since February 2013, when they sold 98,826 cars.

Industry insiders expect the tax benefit to boost sales by lowering car prices by at least 200,000 won ($165) and much more for high-end models. The price of the Genesis EQ900 5.0 Prestige, Hyundai’s flagship sedan, could be 2.1 million won cheaper. The sticker price of other popular models, such as the Hyundai Sonata sedan, Kia K7 sedan and Sportage SUV, will be reduced by 410,000 won to 720,000 won, according to automakers.

The automakers are responding immediately, announcing a series of additional discount offers to boost the sales. In addition to the tax reduction, Hyundai will offer 100,000 won to 300,000 won of additional discounts on six models including the small Accent sedan and Veloster and i30 hatchbacks and on its all-time best-selling Sonata sedan. Kia also said it will offer a similar amount of additional discounts on three models, including the K5 sedan. Having all the benefits, consumers can enjoy an 800,000 won discount on Hyundai’s large-size Grandeur sedan. Other companies such as GM Korea said it will offer 600,000 won to 1 million won of additional discounts on the Spark minicar.

The tax reduction is expected to help sales of cars that were struggling, such as the hybrid Ioniq that Hyundai launched last month. The automaker touted the vehicle’s fuel efficiency of 22.2 kilometers per liter (52.2 miles per gallon), better than its rival Toyota Prius.

But the Ioniq got caught between the end of the tax benefit and low gas prices. Hyundai only sold 493 units.

The tax cut will not apply to foreign brands, but they immediately responded to the measure by announcing a series of discount options for Korean customers. Mercedes-Benz Korea is offering discounts of 500,000 won to 4.4 million won, and Japanese automaker Nissan Korea said it will offer a 400,000 won discount on its Qashqai SUV and a gift certificate for 1.7 million won worth of gas on some models.

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