"Eco-Friendly Bus VAT Exemption Must Be Maintained"... Seoul, Local Governments Nationwide Mount Joint Response

Government Moves to End VAT Exemption for Eco-Friendly Buses
Passage Would Add 35 Million Won per Electric Bus
Threatening the Green Transition and Deepening Financial Strains on Bus Operators

The Seoul Metropolitan Government is joining 15 local governments across the country in efforts to preserve the special exemption from value-added tax (VAT) on eco-friendly city and village buses.

According to the Seoul Metropolitan Government on November 5, 16 local governments nationwide, including Seoul, will call for the withdrawal of a related bill to ensure the stable implementation of policies to transition to eco-friendly buses and maintain public transportation services.

An amendment to the Restriction of Special Taxation Act, currently pending before the National Assembly, is likely to bring the VAT exemption for eco-friendly buses to an early end. The local governments say the exemption is needed to ease their fiscal burden and ensure the stable implementation of policies to transition to eco-friendly public transportation.

Under current law, the special VAT exemption for the supply of eco-friendly city and village buses, including electric and hydrogen-powered buses, was set to remain in effect through December 31, 2028. However, if the government’s proposed amendment is passed, the exemption will end early on December 31, 2026. If VAT equivalent to 10% of a vehicle’s value is newly imposed on vehicles delivered on or after January 1, 2027, the initial purchase cost of each electric bus will rise by about 35 million won, based on an average vehicle price of approximately 350 million won.

Local governments nationwide view the proposed reduction in tax benefits as a serious threat that could undermine the eco-friendly bus transition policy itself. With the phaseout of CNG bus production starting next year making the transition to eco-friendly buses “a necessity, not a choice,” they expect higher vehicle prices to seriously disrupt the introduction of eco-friendly buses.

Transport operators with limited financial resources, such as privately operated village bus companies, will have little choice but to avoid adopting eco-friendly buses, reduce the number of vehicles they replace, or keep operating old vehicles because of the increase in upfront costs of tens of millions of won. Moreover, local governments nationwide, including Seoul, are scheduled to replace approximately 3,500 buses in 2026. If the amendment to the Restriction of Special Taxation Act passes, more than approximately 4,000 buses nationwide are expected to be directly affected by the reduction in tax benefits in 2027 alone.

In Seoul, the number of buses scheduled for replacement is expected to surge 26.7%, from 585 in 2026 to 741 in 2027, and rise further to 1,256 in 2030. The additional fiscal burden from VAT is estimated at an average of 35 million won per bus, amounting to approximately 139.8 billion won annually nationwide. The city says that ending the exemption could negatively affect not only the achievement of carbon neutrality but also stable bus operations and public transportation services.

Yeo Jang-kwon, head of the Seoul Metropolitan Government’s Transport Office, said, “The transition to eco-friendly buses is a key policy directly linked to citizens’ quality of life, making the central government’s continued attention and institutional support essential. We will work in unison with local governments to ensure citizens’ reliable access to transportation and build a sustainable public transportation system.”

This content was produced with the assistance of AI translation services.