Gov't mulls slashing auto-related taxes to fuel domestic sales

SEOUL, March 26 (Yonhap) -- The government is considering measures to slash automobile-related taxes to spur domestic consumption and help carmakers better cope with the worldwide economic slump, government officials said Thursday.

The tentative measures outline possible cuts in consumption, registration and
acquisition taxes, with the government to announce a final version of the plan
after deliberation with related agencies and parliament is completed, the
Ministry of Knowledge Economy said.
The incentives, examined at a weekly emergency economic policy meeting earlier in
the day, should only apply to owners who registered vehicles before Jan. 1, 2000,
and who are looking to buy new cars this year.
"The total number of cars that the temporary measures can benefit is estimated at
5.5 million, but if just 5 percent of the older-model car owners buy new
vehicles, it can translates into sales of 250,000-260,000 units," Knowledge
Economy Minister Lee Youn-ho said.
On average, about 80,000 cars are sold in the country per month with benefits to
cover both privately owned cars and those operated by businesses.
"The changes could also help improve the country's carbon dioxide emissions by 2
percent," the official said. He pointed out that before 2000, the country did not
enforce tough emission standards, which have now become important as the country
moves to reduce greenhouse gas output.
The policymaker, however, stressed that since the government plans to use
taxpayer money to help the beleaguered car manufacturing sector, it will ask
companies to improve efficiency and labor-management relations.
"The support is contingent on changes implemented by companies so if there is no
change support may be withheld," Lee said.
The ministry in charge of the country's industrial policies also said the
government is looking into ways to provide more liquidity to car financing
companies with research and development supports being provided to improve fuel
efficiency.
"The proposals, if they are implemented, do not conflict with existing
international rules regarding support of industries and companies by the
government, and are actually mild compared to policies being pushed forward in
Europe and the United States," a ministry official claimed.
South Korea's auto industry, meanwhile, reported a 34.1 percent on-year drop in
production in the first two months of this year as both exports and domestic
consumption were hit by sagging demand.
Such developments could pose problems for the overall economy since the sector
employs roughly 1.6 million workers directly and indirectly.
In 2008, the country produced 3.83 million vehicles, or 6 percent of the global
total, with 70 percent of these being sold abroad. Exports reached US$48.9
billion, with the country posting a surplus of $41.3 billion in the auto sector
for the entire year.
yonngong@yna.co.kr
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