BMW and Mercedes-Benz are among foreign carmakers expected to benefit from new tax breaks for passenger vehicles in South Korea.

Sales tax has been cut to 8% from 10% for cars with engines more than two litres. For cars with engines less than two litres, the sales tax has been reduced to 4% from 5%. The cuts last until the end of the year.

South Korean’s government wants to encourage consumers to spend more. Politicians are alarmed that last year’s slow economic growth of 3.1% has weakened consumer demand.

Car sales in Korea dropped by 30.7% in the first two months of 2004 compared with the same period last year.

Most of the imported cars sold in South Korea are powered by engines of more than two litres. The tax cuts will reduce the price of a BMW 760Li by €2,747. A Mercedes-Benz CL600 will cost €2,403 less.

Similar tax breaks offered for a limited period last year helped to increase local car sales by about 10%.