[오토모빌코리아=뉴스팀] When looking for a car, the most worrying part is money. How much do you have? Or, how much you can invest determines the car you can buy. In addition to the car price, it is not easy to choose a car because it is necessary to consider all of the employment registration tax and insurance premium incurred upon registration, as well as other automobile taxes and maintenance costs.
You may have heard the word individual consumption tax when buying a car. These days, the government is implementing individual consumption tax cuts as a part of promoting consumption, and many consumers are insisting to abolish it, saying, “I do not know why the individual consumption tax exists. What is the individual consumption tax, and why did public opinion abolish it?
What is individual consumption tax?
According to Article 1, Paragraph 1 of the Individual Consumption Tax Act, individual consumption tax is defined as imposed on certain goods, acts of entering a certain place, acts of entertainment and food in certain places, and acts of business in certain places. In the old days, it was called a special consumption tax. It is imposed for the purpose of suppressing the consumption of luxury goods, such as luxury goods, golf, and casinos.
Automobiles were also a luxury item that only the rich could ride in the past, so it has been designated as subject to individual consumption tax, and fuel used in automobiles is also levied on individual consumption tax in the name of energy saving.
Individual consumption tax for cars
How long will it stick?
According to Article 1 (2) of the Individual Consumption Tax Act, it is stipulated that 5% of the car price is levied as individual consumption tax. Of course, the options you choose when purchasing a car are also subject to taxation, and if you select additional accessories provided by the manufacturer, these are also included in the car price and are taxed. In other words, 5% of all costs paid to manufacturers are levied as individual consumption tax.
If the basic price is 30 million won, the option price is 2 million won, and the accessory price is 1 million won, 5% of the combined price of 33 million won, or 1.65 million won, is charged as individual consumption tax.
Regardless of the engine displacement, 5% of the car price is levied as an individual consumption tax for motorcycles, campers and electric vehicles. Individual consumption tax is exempted for light cars, passenger cars of 9 or more, vans, taxis, rental cars, and trucks.
In addition, 30% of individual consumption tax is charged as education tax. An individual consumption tax of 1.65 million won (5%) is levied as an individual consumption tax from 33 million won in the previous example, and 495,000 won (30% of the individual consumption tax) is levied as an education tax. Finally, a 10% VAT will be levied. Automakers specify their prices inclusive of individual excise tax, education tax and VAT on their price list. In addition, acquisition tax for registration must be paid separately.
Subject to individual consumption tax
There is public opinion among netizens to abolish the individual consumption tax on automobiles. This is because automobiles are not suitable for individual consumption tax imposed on luxury goods or services such as luxury goods.
Currently, there are a total of 2.393 million cars registered in Korea, and about half of the population owns a car by simple calculation. In the past, tea was used as a symbol of wealth, but now there are many views that it should be viewed as a necessity for living. In particular, in areas where public transportation is poor, the need for cars becomes even greater.
Excessive taxes on cars
In particular, automobile consumption tax is a tax that is difficult to find in foreign countries. European Union member states pay only VAT and registration tax when buying a car, without individual consumption tax. Japan introduced an environmental performance ratio tax, which differentiated the tax rate from 0 to 3% according to vehicle fuel consumption, instead of the acquisition tax from October last year.
On the other hand, in Korea, to buy a car, individual consumption tax of 5%, education tax of 1.5%, VAT 10%, and acquisition tax of 7% are charged. If you buy a car worth 20 million won, you can pay 2.66 million won in Japan, but in Korea you have to pay 5.75 million won, which is twice as much. Many responded that the tax is excessive due to the double taxation of VAT and individual consumption tax.
Individual consumption tax reduction
According to a report by the Korea Economic Research Institute, the government has implemented a total of five individual automobile consumption tax cuts since 2008, when the global financial crisis hit. They all had a common purpose of revitalizing the economy, but it is difficult for consumers to predict when it will start, when it will end, and how much it will be reduced.
From July 2018 to December 31, 2019, for a total of one year and five months, the individual consumption tax was cut by 30% due to the economic downturn caused by increasing global economic uncertainty. Although the discount was removed from January 1 of this year, the individual consumption tax cut policy was implemented again in March, two months after the influence of the novel coronavirus infection.
This time, they are discounting 70% from March to June and 30% from July to the end of the year. In the end, consumers who bought cars in January and February of this year paid more taxes than others by only a month or two, and it was controversial for a while.
An expert said, “If the social awareness that even if the temporary individual consumption tax cut ends, it can be lowered later, it is difficult for normal consumption behavior to occur and policy effects are bound to be diluted.” He added, “Because of the inconsistent cut policy, tax inequality among consumers may arise.”
Individual car consumption tax
Abolition or reorganization is necessary
The Korea Economic Research Institute argues that “the automobile industry has a wide range of related industries and has a high job creation effect, so it has a great impact on the national economy.” Since individual consumption tax is included in the price of the car, it is possible to reduce the price of the car by eliminating it.
If it is necessary to maintain individual consumption tax to secure tax revenue, he suggested that it is reasonable to set standards based on price or fuel economy. For example, there is a method of imposing individual consumption tax only on expensive cars with an engine displacement of 3.0 liters or more or 50 million won or more, or at a differential proportional tax rate that considers fuel economy as in Japan. A member of the Korea Economic Research Institute emphasized that “cars are no longer considered a luxury item, so the individual consumption tax should be abolished in order to relieve the consumption burden.
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