The government proposed on Wednesday tax cuts worth up to 4.2 million won ($3,600) for purchasers of electric vehicles, as part of its bid for next-generation transportation that is convenient, affordable and energy-efficient.

Starting next year, all electric car buyers will receive a 5-percent reduction in the special consumption tax, which also covers the education tax, a 7-percent cut in acquisition tax and an additional discount of up to 20 percent on automobile bond purchase, according to the Ministry of Knowledge Economy.

“The decision is aimed at securing consistency in the tax regime by setting up standards of electric cars and their fuel efficiency,” the ministry said in a statement.

“The government will continue adjusting and improving its policy to be relevant to the advancement of related technologies, given the need for the wider distribution of electric cars.”

Koreans have been keen on the launch of electric cars as fuel prices remained high throughout this year in an economy relying almost entirely on imports for energy supplies.

The envisioned tax breaks are set to give fresh impetus to Hyundai Motor Co., which is gearing up to churn out the nation’s first midsize electric sedan, the BlueOn, early next year.

Along with its affiliate Kia Motors Corp., Korea’s top automaker developed other models such as the Elec-City and i10, must of which have been adopted by government agencies.

“Such tax incentives are a clear boost for us,” a Hyundai spokesperson said. “Electric cars have a long way to reach regular customers for everyday use. But we can expect there would be more public institutions to use them in the coming days.”

Hyundai shares went up 1.5 percent to close at 207,500 on Wednesday.

In August, Hyundai formed a consortium to manufacture plug-in compact vehicles starting 2014 in a 100 billion won project initiated by the government.

For Hyundai and Kia, high price tags and the use of liquid-petroleum gas over petrol have dampened sales of their first two hybrid electric vehicles ― the Avante LPi Hybrid and Forte LPi Hybrid.

They now aim to come up with a better-performing car than the BlueOn, which can manage up to 140 kilometers per charge, but falls short of the Nissan LEAF’s 160 kilometers and the Chevrolet Volt’s 610 kilometers. Kia is expected to unveil a new compact utility vehicle by the end of the year.

Despite temporary drops amid a dismal outlook for the global economy, Korea’s benchmark Dubai crude has been hovering around $100 or above a barrel since political upheaval in the Middle East early this year.

The average retail price in Seoul stays at 2,045 won per liter as of Wednesday.

The government has been pressing the country’s four refiners ― SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank ― to lower petrol prices and introduced a plan to allow the public to buy LPG vehicles that are five years old or older.

Many consumers are turning to smaller and more affordable cars as they struggle to cope with spiraling petrol costs.

Hyundai’s compact Avante has been the top seller in the local market for four straight months to September, according to the Korea Automobile Manufacturers Association.

The government targets to produce 1 million electric vehicles a year from 2020, 700,000 for export, generating 40 trillion won in sales.

By Shin Hyon-hee (heeshin@heraldcorp.com)