The expiration of the zero-rate VAT regime is expected to add hundreds of billions of won annually to urban rail operators nationwide.
Seoul Transportation Corporation carries 4.54 trillion won in financial debt and 142.6 billion won in annual interest costs, compounding pressure on safety investment.
Seoul Transportation Corporation said discussions are needed on institutional remedies to ensure stable safety investment, as the expiration of the zero-rate value-added tax regime applied to urban rail construction services — under the government's tax reform plan — is expected to increase the fiscal burden on urban rail operators nationwide.
The zero-rate VAT regime for urban rail construction services is a tax exemption that applies a 0 percent VAT rate to construction costs paid to contractors. The exemption has been renewed in three-year cycles. If it expires and the standard 10 percent rate takes effect, facility investment costs for urban rail operators will rise accordingly.
The combined additional VAT burden on urban rail operators across the country is expected to reach hundreds of billions of won per year once the zero-rate benefit ends. Unlike taxable businesses that can claim input tax credits, operators providing passenger transport — a tax-exempt service — cannot deduct the VAT they pay under tax law.
Seoul Metro lines 1 through 8 are 42 to 52 years old, and their aging infrastructure — including signaling systems, track facilities and power equipment — requires continuous upgrades. With safety investment needs running into the hundreds of billions of won annually, any additional cost burden could strain the funding available for aging-facility improvements and rail safety upgrades.
Seoul Transportation Corporation's financial position is already under severe pressure. As of the end of last year, the corporation carried 4.54 trillion won ($3.28 billion) in financial debt, with accumulated losses reaching 20 trillion won. Annual interest costs on that debt total 142.6 billion won, equivalent to an average daily burden of about 390 million won.
Electricity costs are also rising. Seven rounds of industrial electricity tariff increases since 2022 pushed the corporation's power bill last year to 274.3 billion won — up 58.1 percent, or 100.8 billion won, from 173.5 billion won in 2021.
Carbon emission credit costs present another new burden. As the government cuts greenhouse gas emission allowances for all designated entities to meet its 2030 national greenhouse gas reduction target, the corporation expects to spend an additional hundreds of billions of won purchasing carbon credits in the years ahead.
Given these fiscal conditions, the expiration of the zero-rate VAT regime for urban rail construction services is expected to generate hundreds of billions of won in additional annual costs. The corporation said the financial situation of urban rail operators and their ongoing safety investment needs should be factored into any review of the tax change's impact.
Jung Jong-yeop, head of the management support division at Seoul Transportation Corporation, said the Seoul subway is in a phase of continuous large-scale infrastructure investment directly tied to public safety, including annual replacement of aging facilities and system upgrades. "Discussions are needed on institutional remedies — such as maintaining the current zero-rate VAT regime for urban rail construction services — to ensure that safety investment can continue without interruption," he said.
seouldream01@heraldcorp.com
