Car Excise Tax Cut Set to End This Month; Rates to Revert to 5% in July

The government's reduction of the 'individual consumption tax' (Gaebyeolsosibe) levied on automobiles is highly likely to conclude at the end of this month. Consequently, tax burdens for car purchases are expected to increase from July 1st. Specifically, the individual consumption tax rate will rise from 3.5% to 5%, which could lead to an increase in vehicle prices due to its ripple effect on other taxes such as education tax and value-added tax. Those taking delivery of vehicles after July will no longer be eligible for the reduced tax benefits.

With interest rates on installment plans already high due to prolonged high interest rates, consumer sentiment for new purchases in the second half of the year is likely to weaken with the end of the excise tax cut. Last month, domestic car sales decreased by 10.3% year-on-year to 127,000 units, and new car sales in Korea from January to May increased by only 1.0% compared to the same period last year.

The government has not yet officially announced whether the 30% excise tax reduction measure, scheduled to end this month, will be extended. Discussions on the matter are reportedly not yet concrete. Major automakers, including Hyundai Motor and Renault Korea, are implementing promotions to mitigate the impact of the excise tax termination.