Gov`t to impose tax more strictly on vehicles for business use

Gov`t to impose tax more strictly on vehicles for business use. August. 07, 2015 07:19. tnf@donga.com.

From the year of 2016, the Korean government will impose tax more strictly on vehicles designated for business use. In addition, a business which has recently reported a default makes profit, the business should pay corporate tax for at least 20% of the profit generated during the current year. The government mended the taxation system which has been criticized as ‘special tax treatment’ for large companies and business owners.

Until now, the government has recognized operating costs of a vehicle for business use, which includes rent for the vehicle, insurance, repair expenses and even highway tolls, as the business operation expense and reduced tax on it. This taxation policy has been abused as a way of tax evasion in which a business owner and his family use a premium sedan, which is bought for business use, for their personal purposes.

From the next year, operating costs of vehicles for business use (excluding a compact car, a two-wheeled vehicle and a truck for freight transportation) will be recognized as business operating expense when the company subscribes to a car insurance that allows only employees of the company to drive and reports the vehicle to a tax office. Also, the new taxation system requires evidence or proof documents such as a vehicle log to recognize an item that accounts for more than 50% of the total vehicle operation cost as business operating expense. However, operating costs of a vehicle affixed with logos to publicize a company or a business owner (except for attachable logos) will be fully acknowledged as business operating expense.

As of 2013, 8.5 trillion won (approx. USD 7.26 billion) was reported to the National Tax Service as operating costs of vehicles designated for business use. “The new taxation system will reduce cases where business owners use company vehicles for their personal purposes and enjoy tax reduction," the Ministry of Strategy and Finance said. "It will contribute to collect taxes worth 550 billion won (approx. USD 470.8 million) additionally per a year.”