SEOUL, Aug 3: South Korea said on Saturday it would scrap tax breaks on automobile purchases in September as scheduled, with car sales showing a strong recovery on the back of the rebounding economy.

Last year, the government cut the sales tax on automobiles in a bid to boost consumption and spur economic growth.

But as inflationary pressure builds along with an economy growing at a faster-than-expected pace, the government has been under pressure to scrap the tax breaks.

The removal of tax breaks means consumers will have to pay around 3-5 per cent more for cars from next month, the official said.

We’ve decided not to extend the tax benefits, said an official at the finance ministry. We’ve notified the United States of our decision.

South Korea and the United States, the biggest export market for Korean automakers, are scheduled to hold working-level talks in Seoul next week to discuss bilateral trade issues.

Sales tax for sedans above 2,000cc will be raised to 14 per cent from 10 per cent, while that for 1,500-2,00cc will be increased to 10 per cent from 7.5 per cent. Tax for cars below 1,500cc will be raised to 7.0 per cent from 5.0 per cent.

The Bank of Korea expects the economy to have grown 6.1 per cent in the first half and predicted a 6.8 per cent second-half growth, while full-year growth is forecast at 6.5 per cent.

A Reuters poll showed that Korea’s consumer price index (CPI), the broadest measure of inflation, is expected to grow 3.2 per cent this year, above the central bank’s 2002 target of three per cent.

Hyundai Motor Co, Korea’s top automaker, has reported a 20 per cent increase in July sales from a year earlier, helped by the tax breaks, while exports jumped 40.7 per cent.—Reuters