As international oil prices have surpassed $100 per barrel, attention is turning to whether the government will extend the fuel tax cut set to expire at the end of this month. The government plans to decide on the tax adjustment by considering the oil price ceiling and trends in international oil prices. However, there are calls to reassess the tax rates and adjustment methods, as the temporary fuel tax cut introduced in 2021 has effectively continued for nearly five years.
According to the Ministry of Economy and Finance on the 14th, the government will determine whether to extend the fuel tax cut and the extent of the cut based on a comprehensive review of international oil prices, domestic oil product prices, and the operation of the oil price ceiling system. Relevant discussions are expected to take place at a meeting of economic ministers and related agencies before the 30th.
Currently, a 15% tax cut applies to gasoline, while diesel and liquefied petroleum gas (LPG) are subject to a 25% cut. As a result, the tax on gasoline is 698 won per liter, diesel is 436 won, and LPG is 152 won. Compared to the flexible tax rates before the cuts, gasoline is 122 won lower per liter, diesel is 145 won lower, and LPG is 51 won lower.
If the government extends the current tax cuts, consumers will not receive additional discounts on fuel prices; rather, it will maintain the reduced tax burden. Conversely, if the tax cut is terminated, the flexible tax rates will apply again, leading to increased tax burdens on gasoline and diesel, which could contribute to rising fuel prices.
Ultimately, the government faces a dilemma: extending the cuts would mean accepting a reduction in tax revenue while trying to curb price increases, whereas normalizing the tax could lead to higher fuel costs and increased inflationary pressures.
Recent trends in international oil prices are complicating the normalization of the fuel tax. On the 10th, Brent crude and West Texas Intermediate (WTI) prices reached $107.63 and $102.48 per barrel, respectively, marking a return to triple-digit prices. On the 13th, Brent crude approached $110 during trading, indicating sustained high oil prices.
Domestic inflation is also a factor. The consumer price index rose 3.1% in August compared to the same month last year, returning to the 3% range after a month. However, excluding the base effect from last year's telecommunications discounts, the inflation rate is estimated at around 2.5%. In the same month, oil prices increased by 14.2% year-on-year. As of the 14th, the average selling price at gas stations was 1,858.69 won per liter for gasoline and 1,843.98 won for diesel.
The fuel tax cut was first introduced in November 2021 and has been extended several times, with the cut rates adjusted based on international oil prices and inflation. The gasoline tax cut rate peaked at 37% in 2022 before being gradually reduced. However, following a surge in oil prices from the Middle East in March of this year, the gasoline tax cut was increased from 7% to 15%, and the cuts for diesel and LPG were raised from 10% to 25%. Similar cuts were extended in May and July.
Nevertheless, the government has indicated that if international oil prices stabilize, it may reduce the fuel tax cut or normalize it. A Ministry of Economy and Finance official stated, "If oil prices fall, normalizing the fuel tax could allow consumers to purchase at lower prices than before," adding that adjustments will be made based on oil price trends.
Regarding the financial burden of the fuel tax cut, the official noted, "Both the flexible tax rate reduction and the oil price ceiling ultimately involve financial resources," but emphasized that if gas station purchase prices rise significantly, both the financial burden and consumer burden must be considered.
* This article has been translated by AI.
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