The government has initiated the process of revamping the current vehicle tax, which is currently based on engine displacement, to consider factors such as vehicle price. If the criteria for vehicle taxation changes, it is anticipated that imported cars will face a significant increase in tax burden, while domestically manufactured cars may see a decrease in taxes.
On Sept. 20, the Ministry of the Interior and Safety (MOIS) announced the formation of a task force for the revision of vehicle taxes this month in collaboration with the Korea Institute of Local Finance. It intends to gather opinions from experts and relevant government departments and formulate a revision plan by the first half of next year.
Vehicle taxes currently have a dual nature, serving as both a property tax based on car ownership and a causative tax based on the social costs incurred, such as road damage and traffic congestion. Tax revenue from vehicle taxes is allocated to both metropolitan and provincial taxes, respectively. Currently, for non-commercial passenger cars, the tax rate is 80 won (US$0.06) per 1cc for engine displacement up to 1,000cc, 140 won per 1cc for engine displacement up to 1,600cc, and 200 won per 1cc for engine displacement exceeding 1,600cc.
However, with recent advancements in technology allowing for "engine downsizing," where car engines maintain their performance while reducing engine displacement, many have pointed out the need to revise the taxation criteria. This is because high-displacement, high-priced vehicles are being replaced with lower-displacement models, necessitating a change in taxation standards.
The revision plan is also expected to include improvements in the taxation criteria for eco-friendly vehicles such as electric cars. Currently, non-commercial electric cars are subject to an annual automobile tax of only 100,000 won, causing a decrease in tax revenue as the proportion of electric cars increases.
The MOIS aims for legislative changes in the second half of 2024.