The South Korean government announced that tax benefits for hybrid electric 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.
According to industry sources on August 3, the government revealed a tax law amendment that will terminate the tax reductions for HEVs, including individual consumption tax, education tax, and acquisition tax, by the end of this year. The tax reduction program was introduced in 2009 to promote the purchase of eco-friendly vehicles, initially offering a 1 million won tax break per vehicle, which has since been adjusted to 700,000 won per vehicle. The government has decided not to extend the tax reduction period, stating that the objectives of the tax support have been achieved.
Tax benefits for EVs and FCEVs will also be phased out. Currently, EVs receive a 3 million won tax reduction, which will decrease to 2 million won in January 2027 and 1 million won in January 2028. Similarly, the tax reduction for FCEVs, which is currently 4 million won, will drop to 3 million won in January 2027 and 1.5 million won in January 2028. Both tax benefits for EVs and FCEVs will expire on December 31, 2028.
Concerns have been raised that these changes may dampen demand for eco-friendly vehicles. The elimination of the HEV tax benefit could add up to 1 million won to the actual purchase cost for consumers, as it includes 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 translates to an increase in consumer prices by 4.29 million won and 5.72 million won, respectively.
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. This comes at a time when both exports and domestic sales are struggling, and the industry has been relying on stable demand for HEVs and EVs to weather the storm."
However, the government plans to enhance the efficiency of the program by converting tax benefits into financial support. The Ministry of Economy and Finance is currently discussing plans to expand subsidies for EVs and FCEVs with relevant departments. A government official noted, "By gradually reducing the tax benefits for EVs and FCEVs and transitioning to financial support, we aim to improve the efficiency of the policy and ensure that assistance is directed where it is needed. We believe that the subsidy program can sufficiently offset the reduced tax benefits."
* This article has been translated by AI.
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