[Stranded Industries, Government Tightening] 'Tilted Tax Playing Field'... Only Korean Oil Companies Pay 'Heavy Oil Tax'

Among 66 Countries Including OECD, Only Korea Taxes 'Raw Material Heavy Oil'
Democratic Party's Goyongjin and People Power's Choo Kyung-ho Propose 'Conditional Tax Exemption' Amendment

[Asia Economy Reporter Hwang Yoon-joo] After the 'Golden Age (2004-2007)' passed and the industry entered the 'Dark Age' in 2020, the refining industry has found the tax burden, which had been unfair but silently endured, increasingly unbearable. The survival of the refining industry has become precarious as it can no longer sustain tax burdens without clear grounds for taxation.

Since the outbreak of the novel coronavirus disease (COVID-19), refiners have increased imports of heavy oil, which is cheaper than crude oil, to enhance price competitiveness, refining it into petroleum products such as gasoline and diesel. Heavy oil is a viscous dark brown oil left after refining crude oil. Its price is 80-90% of that of crude oil.

Petroleum products used as raw materials for petrochemical industries are exempt from individual consumption tax. However, heavy oil is considered an intermediate petroleum product and is subject to individual consumption tax. A tax of 17 KRW per liter is imposed on all heavy oil regardless of its use. The annual amount paid by the domestic refining industry in individual consumption tax on heavy oil reaches 73 billion KRW. From the industry's perspective, which essentially uses heavy oil as a 'raw material,' there is inevitably a gap with reality. An industry insider said, "South Korea is the only country that taxes heavy oil used as raw material," expressing concern that "no matter how much refiners lower costs, their price competitiveness in overseas markets will inevitably decline, and losses in the refining sector are likely to continue next year."

Currently, Go Yong-jin of the Democratic Party of Korea and Chu Kyung-ho of the People Power Party have each proposed amendments to the Individual Consumption Tax Act for conditional tax exemption on heavy oil. The amendment adds 'petroleum product production process use' to the existing tax-exempt categories, which include ▲medical use ▲pharmaceutical manufacturing use ▲fertilizer manufacturing use ▲pesticide manufacturing use or petrochemical industry use.