Government to Revise Individual Consumption Tax

 

 

1. Liquor Tax

 

The government has drawn up revisions to liquor tax, which will be applied to beer and unstrained rice wine.  According to the revision, beer and unstrained rice wine will be taxed based on the amount of alcohol they contain, instead of the current price-based taxation. 

 

Background

 

There have been complaints from local breweries about the country’s price-based taxation, which makes local beer expensive compared with its imported counterparts.  It also turned out that the price-based taxation has kept local breweries from developing high-quality products, whose consumer prices will jump if taxed price-based.  Against this backdrop, the government worked to introduce a liquor tax which is based on the amount of alcohol contained.  The new tax is expected to create jobs at local breweries as it will stimulate the production of high-quality beer.  Of the 35 OECD member countries, 30 countries have adopted alcohol content-based liquor tax. 

 

Framework

 

- No sudden increase in the price due to the tax revision

- Stick to the WTO’s principle of ‘national treatment’

- Stick to the principle of corrective taxation

- Avoid sudden changes:  The country has been under the price-based tax for 50 years since 1968 and the government worked carefully to avoid sudden changes that might occur due to the new system.  We will start with beer and unstrained rice wine, watch how it works and listen to the voices from the Korean people as well as the industry, and gradually expand to other liquor

 

Revisions

 

Beer:  830.3 won per liter[1], draft beer given a 20 percent temporary cut (664.2 won per liter) for two years to encourage small craft breweries.

 

Changes in tax burden according to the new calculation (per liter): draft beer (up 445 won), beer in PET bottles (up 39 won), beer in glass bottles (up 23 won), beer in cans (down 415 won)

 

Unstrained rice wine:  41.7 won per liter¹

 

 

Rates to be indexed to inflation

 

Tax rates will be indexed every year to current inflation for the new tax not to discriminate against other liquor remaining in the price-based tax system. 

 

The new liquor tax will be included in the 2019 Tax Revision Bill and submitted to the National Assembly in September for approval.

 

 

2. Auto Tax

 

The government has drawn up a revision to the individual consumption tax to extend a 30 percent cut for auto purchases, from 5 percent to 3.5 percent, to the end of 2019.  If extended, it will be the third time for the tax cut to be granted.  It was first given in 2018 from July 19 to December 31, and then extended to June 30, 2019.  The auto tax cut has boosted sales so far as the sales went up 2.2 percent year-on-year in the second half of 2018, and 0.1 percent this year until April. 

 

The government will work in June on revisions to the enforcement ordinance to make the tax cut ready again from July 1.