Here are two article titles: “Granger gets $540 cheaper next month” and “Granger gets $360 more expensive starting next month”. The bottom line is that the second headline is correct. The first one is the title of an article written by the morning newspaper A in response to a press release from the National Tax Service on the 7th. The second article is from the morning newspaper B, based on a press release from the Ministry of Strategy and Finance the next day (the 8th). Same car, cheaper yesterday, more expensive today? I feel like a “hogang” (a customer who seems to be easy to fool).
One government tax, two standards
This happened because the National Tax Service and the Ministry of Land, Infrastructure, and Transport have different standards and perspectives on car taxes. Cars are sold with an individual consumption tax. The original rate is 5%, but for a limited time, the rate is 3.5%. This rate is important because it is the basis for another tax on cars, the education and wealth tax.
Let’s take the example of a Granger with a factory price of 42 million won. The total taxes are 6.3 million won, including the sales tax (1.47 million won), education tax (440,000 won), and value-added tax (439,000 won). The final sale price (price ① in the figure below) is 48.3 million won after taxes. The problem is that the sales tax rate will increase again to 5% in July, so the sales tax (2.1 million won), education tax (630,000 won), and value-added tax (447,000 won) will increase again, resulting in a final sales price of 49.2 million won (sales price ② in the figure below). From the next month, consumers would have to pay 900,000 won more (price ② – price ①).
However, the National Tax Service decided to improve the tax calculation method for domestic cars from the same time (July). There were many arguments that the tax base (taxable standard) of domestic cars was higher than that of imported cars, so a certain percentage should be subtracted from the ex-factory price. Therefore, the concept of standard sales ratio was introduced, and taxes on domestic cars will be calculated by subtracting 18% of the ex-factory price먹튀검증. Applying this formula, the final sales price (③ in the figure above) will be 48.66 million won. This is actually the price of the car that consumers will have to pay from July.
■ If only we had summarized and announced it all at once…
In conclusion, although a formula was introduced to reduce the tax on domestic cars, the individual consumption tax rate itself increased from 3.5% to 5%, and as a result, consumers will pay more tax (6.3 million won → 6.36 million won). The NTA’s point of view here is that ‘I bought a car that was originally 900,000 won more expensive, so it’s 540,000 won cheaper!’ But how many people actually feel that way, and don’t they just feel that it’s 360,000 won more expensive?
The government’s announcement of the two policies that determine the car tax in a ‘three-way’ manner led to misunderstandings from the consumer’s point of view. In fact, there was a lot of criticism in the comments section of the article on the Internet over the confusing announcement. If the NTA and the Ministry of Land, Infrastructure, and Transport had announced the contents at the same time on the same day, there would have been less confusion about the car tax burden. The Ministry of Land, Infrastructure, and Transport, which is a subordinate agency of the NTA, should have thought of a more sophisticated public relations method.
What’s wrong with the car tax?
The individual consumption tax on automobiles is a controversial topic. The legislative purpose of the individual consumption tax is to curb the consumption of luxury goods. For this reason, since its introduction in 1977, the law has been amended several times to exclude popularized items such as air conditioners and televisions from the tax.
What about cars? According to the Ministry of Land, Infrastructure, and Transport, the cumulative number of registered cars in Korea reached a record high of 25.5 million at the end of last year. This means that one out of every two Koreans (51.44 million) owns a car. According to Lim Dong-won, a research fellow at the Korea Economic Institute, only Australia, Canada, and Turkey have additional consumption taxes on cars in addition to VAT among developed countries. “Among the top 10 auto producers in the U.S., Europe, and Japan, Korea is the only country that imposes an individual tax on cars,” Lim said.
However, there are concerns about the lack of tax revenue. From January to April this year, tax revenues were 33.9 trillion won less than the same period last year, the largest drop ever. It’s also why the government was unable to extend the five-year “car tax cut” after July 2018.
The tax revenue generated from the vehicle excise tax is currently worth 1.4 trillion won ($1.2 billion) as of 2021. The amount of tax the government could have collected if the cut ended is reportedly 600 billion won per year. While this is not a huge amount compared to the overall tax revenue shortfall, every penny counts for the government. Drivers are now watching to see if the government will extend the gas tax cut again until the end of August this year.