Used car industry protests against new tax system

By Park Jin-hai

Used car dealers say a new government tax measure doubly taxes their incomes and the used car black market to grow.

Since 1999, the government has enforced a value added taxation system that levies sales tax less purchase tax on dealers for each used car sold. The purchase deduction rate has been 0.091 percent for 12 years but decreased to 0.08 percent in 2011, while the sales tax rate has remained at 0.091 percent.

The problem with the amended tax system, which was announced in August, is that it reduces the purchase deduction rate further to 0.065 percent and 0.047 percent for 2015 and 2017, respectively.

“To reflect the principle of taxation, which states that where there is income, there is tax, and to refrain from double taxation, we need to adopt a marginal taxation system for the used car industry,” said lawmaker Yun Ho-jung during a recent discussion on the taxation amendment, which some 450 dealers took part in.

Under the current taxation scheme, when a used car dealer sells a vehicle at cost and with no margin, say at 50 million won, he or she should nevertheless pay 550,000 won in tax. But under the amended system, this amount will grow to 1.3 million in 2015 and to 2.2 million in 2017.

“Although there has been no value added in selling used cars, the government has already been levying taxes on sellers. Plus, customers are already paying taxes when they purchase cars and would be paying taxes twice even if they do not profit from reselling their cars to others. That is double taxation,” Seoul Used Car Dealers’ Association official Kim Min-won said.

He says the government wants to decrease the purchase deduction rate for fear of losing tax revenue, but such action in fact drives many dealers to use the black market.

“The new taxation rate is something that reasonable people cannot accept. The new system is feeding the underground used market and is robbing the government’s tax coffers.”

Lawmakers from the main opposition New Politics Alliance for Democracy including Min Byung-du are planning to submit a bill to amend the current value added tax system.

The used car market has grown to a record 3.37 million cars and 32 trillion won in sales, nearly double that of the new car market last year. However, person-to-person used car sales, which are exempt from the taxation system, accounts for 43 percent of the market, and of these sales, 80 percent are dealer sales disguised as person-to-person sales to avoid taxation.

According to 2007 data from the Anti-Corruption and Civil Rights Commission, out of 815,225 person-to-person used car trades, 90 percent are dealer trades disguised as person-to-person trades.