The government will cut tax breaks on company-owned cars that are effectively used for personal transportation and give more deductions to businesses that raise wages for workers in the new year, the finance ministry said Wednesday.

In the follow-up to the tax code revision plan announced in August, the ministry said that starting in the new year tighter rules on corporate-registered vehicles can help bring in 550 billion won (US$469.7 million) in extra revenue.

Many registered company cars are actually for personal use and not strictly for business.

Under the changes scheduled to go into effect on Jan. 29, cars registered to businesses must get special vehicle insurance coverage, with the government only recognizing the first 8 million won of a car's purchase price as a legitimate expense.

In the past, there were no limits on prices, allowing companies to buy expensive cars without paying the taxes that are levied on individual purchases.

Authorities will also only permit upwards of 10 million won in annual car-related outlays, including fuel, repair costs, insurance and tax payments as refundable expenses. Those wanting to get more refunds must prove that the car has been used for business purposes by providing a detailed operational log.

"In effect, the changes will not increase the burden on companies that operate a medium-sized car, yet will entail more cost for those operating expensive vehicles," said Moon Chang-yong, deputy finance minister of tax and customs.

In addition, companies in the future will be required to hold onto their corporate cars longer in order to benefit from tax breaks.

In the past, even cars costing over 100 million won received deductions if the company held onto it for 4-6 years, but in the future they will have to own it much longer.

This change will make it harder for companies to switch cars every few years without paying all their taxes, the official said.

Besides the actions taken on cars, the government will double the tax deduction rate for small and medium enterprises (SMEs) that opt to raise wages for employees.

"In the past, a tax deduction of 10 percent was offered to SMEs that marked up wages, but this will be raised to 20 percent," the ministry said.

Moreover, SMEs that re-hire temporary workers as part of their regular full-time staff will get additional tax breaks. This incentive will be given to both large companies and SMEs, although the latter will get more benefits.

The ministry then said that starting in March the country will introduce its first individual savings account (ISA) that will reduce the tax burden on individuals wanting to better manage their financial wealth.

An ISA allows a person to handle most deposit, securities and funds transactions with a single account, with the government opting not to tax earnings.

Tax exemptions will range from 2 to 2.5 million won per person depending on his or her annual income level.

These accounts will even offer lower tax rates for earnings that exceed the exemption amount, making them attractive to users.

Regular taxes levied on interest earnings and dividends stand at 15.4 percent, but earnings going through ISA accounts will only have to pay 9.9 percent in taxes.

The ministry, meanwhile, said that the new tax rules call for taxing the country's clergy, who number around 230,000, from 2018 onwards.

The extra taxes that may be collected are not large, although the move itself highlights the government's commitment to fair taxation.

The country expects taxed earnings to go up by some 10 billion won by asking the clergy to pay taxes, since even with the changes, many will still benefit from various breaks. (Yonhap)