South Korean Automakers Face Double Tax Setback
The South Korean government’s latest tax reform plan has left electric vehicle (EV) manufacturers facing a double tax burden, sparking concerns about the sector’s competitiveness in the domestic market. The plan excludes finished EVs from a new domestic production tax credit, which is similar to the U.S. Inflation Reduction Act.
Industry officials warn that the combination of the exclusion and the reduction of individual consumption tax exemptions for EVs and hydrogen-powered vehicles could weaken South Korea’s EV sector. Lower-priced Chinese models are gaining market share, and industry representatives say indirect measures may not be sufficient to prevent weaker demand and declining domestic production.
The government’s production tax credit for secondary batteries could indirectly improve the price competitiveness of EVs. However, officials are considering changes to depreciation expense limits for corporate vehicles to encourage companies to buy more environmentally friendly models.
The Korea Automobile & Mobility Industry Alliance has called for stronger government support, urging the introduction of a tax incentive promoting domestic EV production. The alliance’s chairman said that the measure would help parts suppliers transition to electrification, secure orders, and expand their capacity to invest in future vehicles.
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. BYD sold 11,667 vehicles in South Korea last year after entering the market and ranked fourth in domestic EV sales.
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 government said its production tax credit for secondary batteries could indirectly improve the price competitiveness of EVs. However, industry representatives say 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.
Industry officials warn that if the transition to EVs slows, the effects could spread from automakers to the entire parts industry. Additional support reflecting the sector’s competitiveness is needed.
South Korean EV Makers Warn of Double Tax Burden
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 will provide corporate and income tax credits for up to 10 years to companies producing and selling designated strategic products in South Korea. However, finished EVs were excluded despite repeated requests from automakers.
The decision has fueled concern that domestically manufactured vehicles could lose competitiveness against Chinese imports. The Korea Automobile & Mobility Association 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%.
