The South Korean government announced that tax benefits for hybrid vehicles (HEVs) will end on December 31, 2026, as part of its 2026 tax reform plan. The tax benefits for electric vehicles (EVs) and hydrogen fuel cell vehicles (FCEVs) will also be gradually reduced starting next year, with a complete phase-out by December 31, 2028. The domestic automotive industry is expressing concerns over a potential decline in domestic demand due to global demand slowdowns and competition from low-cost Chinese electric vehicles.
According to industry sources on August 3, the government revealed a tax amendment plan that will terminate the individual consumption tax, education tax, and acquisition tax benefits for HEVs by the end of this year. The tax reduction program was introduced in 2009 to promote the purchase of HEVs, initially offering a benefit of 1 million won per vehicle, which has since been adjusted to 700,000 won per vehicle. The government has decided not to extend the tax reduction period for HEVs, stating that the objectives of the tax support have been achieved.
Tax benefits for EVs and FCEVs will also be gradually reduced. Currently, EVs receive a tax reduction of 3 million won per vehicle, which will decrease to 2 million won starting January 2027 and to 1 million won in January 2028. Similarly, the tax benefit for FCEVs, which is currently 4 million won, will drop to 3 million won in January 2027 and to 1.5 million won in January 2028. The tax benefits for both EVs and FCEVs will expire on December 31, 2028.
There are concerns that these changes will dampen demand for eco-friendly vehicles. The elimination of the HEV tax benefit is expected to add up to 1 million won to the actual purchase cost (comprising 700,000 won in individual consumption tax, 210,000 won in education tax, and 90,000 won in value-added tax). For EVs and FCEVs, the loss of tax benefits amounts to 4.29 million won (300,000 won in individual consumption tax, 90,000 won in education tax, and 39,000 won in value-added tax) and 5.72 million won (400,000 won in individual consumption tax, 120,000 won in education tax, and 52,000 won in value-added tax), respectively, leading to higher consumer prices.
An industry representative stated, "With eco-friendly vehicles accounting for nearly 60% of new car registrations, the end of tax benefits will effectively mean a price increase for consumers, directly impacting demand. In a situation where both exports and domestic sales are struggling, the industry, which has been relying on relatively strong HEV and EV demand, will face a significant shock."
* This article has been translated by AI.
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