The Korean government is moving to cut the aircraft property tax by 25 percent to 30 percent for full service carriers (FSCs) such as Korean Air and Asiana Airlines.
Currently, a 50 percent reduction in the aircraft property tax is offered to low cost carriers (LCCs) under the Restriction of the Special Local Taxation Act which is scheduled to terminate in late 2021.
The central government is judging that a 25 percent cut, which is half the cut for LCCs, is appropriate for FSCs in consideration of the tax conditions of each local government. The central government's basic idea is to suggest a 25 percent cut to local governments in the form of a guideline, but local governments can adjust their final reduction rates depending on their own conditions.
If the reduction rate is set at around 25 to 30 percent, the tax cut benefit for Korean Air and Asiana Airlines is expected to be about 10 billion won.
The aircraft acquisition tax can be cut by up to 60 percent for both FSCs and LCCs, but this option is unlikely to be included in the government’s tax cut package for carriers.
The central government is also considering expanding financial liquidity support for the airline industry. The airline industry is demanding that state-owned banks such as the Korea Development Bank provide payment guarantees as airline companies can hardly issue corporate bonds with their own credit ratings.