South Korea EV makers warn of double tax burden
· UPIAug. 4 (Asia Today) -- South Korean automakers are warning that electric vehicles face a double setback under the government's latest tax reform plan as Chinese brands intensify their push into the domestic market.
Electric vehicles were excluded from a new domestic production tax credit widely described as South Korea's version of the U.S. Inflation Reduction Act. The government also plans to gradually reduce individual consumption tax exemptions for electric and hydrogen-powered vehicles before eliminating them in 2029.
Industry officials said the combination could weaken South Korea's electric vehicle sector as lower-priced Chinese models gain market share.
The Ministry of Finance and Economy said the tax reform plan announced Monday would apply the domestic production credit to six strategic fields: solar power, wind power, secondary batteries, semiconductors, critical materials and artificial intelligence and robotics components. The government had previously presented the credit as a measure to strengthen domestic production and supply-chain resilience.
The program, one of President Lee Jae Myung's campaign pledges, will provide corporate and income tax credits for up to 10 years to companies producing and selling designated strategic products in South Korea.
Finished electric vehicles were excluded despite repeated requests from automakers.
The decision has fueled concern that domestically manufactured vehicles could lose competitiveness against Chinese imports.
The parts industry has also called for stronger government support. The Korea Automobile & Mobility Industry Alliance held a meeting with auto-parts companies in June and urged the government to introduce a tax incentive promoting domestic electric vehicle production.
"We need to introduce the domestic electric vehicle production tax incentive as soon as possible to maintain and expand the country's manufacturing base," alliance Chairman Jung Marn-ki said at the time.
He said the measure would help parts suppliers transition to electrification, secure orders and expand their capacity to invest in future vehicles.
According to the Korea Automobile & Mobility Association, BYD sold 11,667 vehicles in South Korea last year after entering the market and ranked fourth in domestic electric vehicle sales.
Chinese-brand vehicles accounted for 11.4% of South Korea's auto market in the first half of this year, more than double their share during the same period a year earlier, the association said.
The association separately reported that South Korea's electric vehicle sales rebounded 50.1% in 2025 to about 220,000 vehicles, while sales of Chinese-made electric vehicles increased 112.4%.
"The battery sector was included in the domestic production tax credit, but finished electric vehicles were pushed down the priority list," said Lee Hang-koo, a research fellow at the Korea Automotive Technology Institute.
"Hyundai Motor and Kia presumably conveyed the need for such support in advance, so the exclusion is likely to have a considerable impact on production incentives," Lee said.
Industry concerns have grown further because consumer tax benefits will also be reduced.
The individual consumption tax exemption for electric vehicles is currently capped at 3 million won, or about $2,090, per vehicle. The limit will fall to 2 million won, or about $1,390, in 2027 and 1 million won, or about $700, in 2028 before the benefit is eliminated in 2029.
The exemption for hydrogen fuel cell vehicles will decline from 4 million won, or about $2,790, to 3 million won, or about $2,090, in 2027 and 1.5 million won, or about $1,050, in 2028. It will also end in 2029.
The individual consumption tax exemption for hybrid vehicles, currently capped at 700,000 won, or about $490, will expire at the end of this year.
The government said its production tax credit for secondary batteries could indirectly improve the price competitiveness of electric vehicles.
It also plans to compensate for reduced tax exemptions through direct financial assistance, including purchase subsidies. Officials are considering changes to depreciation expense limits for corporate vehicles to encourage companies to buy more environmentally friendly models.
Industry representatives said indirect measures may not be sufficient to prevent weaker demand and declining domestic production when tax support for both manufacturing and purchases is being reduced.
"If the transition to electric vehicles slows, the effects could spread from automakers to the entire parts industry," an industry official said. "Additional support reflecting the sector's competitiveness is needed."
-- Reported by Asia Today; translated by UPI
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Original Korean report: https://www.asiatoday.co.kr/kn/view.php?key=20260804010001178