To spur domestic car demand, the South Korean government may implement new excise tax rates for cars ahead of schedule, the Ministry of Finance and Economy said on Thursday, according to a Dow Jones report.

According to the report, the government didn't say when the new tax rates will go into effect, but said it will try to decide on the matter "as early as possible" to avoid a further contraction in the local car market.

South Korea has struck an agreement with the United States to reduce the types of vehicle tax rates to two from three by the end of this year, Dow Jones noted.

The government haven't yet finalised the new rates, but the simpler tax system will eventually mean lower taxes on cars with engines of two litres and above, the report added.

"The announcement of the government's plan to adjust the tax rates later this year prompted consumers to delay buying cars which was a blow to the domestic auto market," the ministry said, according to Dow Jones.

The report said that, under the current tax system, the government levies a 7% special consumption tax on cars with engines under 1,5 litres; 10% on cars with 1,5- to two-litre engines; and 14% on two litres and above.

Industry watchers believe the new tax system could go into effect as early as the end of July if an extraordinary session of the National Assembly can convene to ratify the bill, Dow Jones said.

In June, South Korea's five car makers saw their combined domestic sales decline by 14% on year to 101,863 units, the report noted.