[News Terms] Bonus Party at Refiners: Imposing a 'Windfall Tax'?

[Asia Economy Reporter Jo In-kyung] Last year, oil refining companies that enjoyed the largest boom in history became embroiled in controversy over the introduction of a 'windfall profit tax' as they decided to pay large performance bonuses to their employees. Public opinion holds that it is unfair for only oil companies to reap huge profits while ordinary citizens face increased household burdens due to rising oil prices and soaring heating costs.

A windfall profit tax is a concept that if a company gains large profits above a certain standard due to external factors without particular internal efforts, a portion of those profits should be reclaimed as income tax and redistributed as social resources. Some European countries, including the UK, already impose windfall taxes on energy companies, and at the European Union (EU) level, legislation has been proposed to apply this under the name of a 'solidarity contribution' on fossil fuel companies.

According to the oil refining industry, GS Caltex plans to pay all employees a performance bonus equivalent to 50% of their base annual salary on the 27th, based on 2022 business results. When converted to monthly base salary, the performance bonus amounts to a staggering 1000%, and there are reports that an additional payment of up to 300% is also being considered.

Earlier, Hyundai Oilbank paid performance bonuses in the 1000% range, and other refiners such as SK Innovation and S-Oil are also expected to give similar scale bonuses. The operating profits of these four refiners last year are expected to reach up to 5 trillion won.

As oil companies have made huge profits thanks to high oil prices and strong refining margins, voices calling for imposing a windfall tax on them have resurfaced in the political arena.

On the 17th, Democratic Party members Lee Seong-man, Kang Deuk-gu, Min Byung-duk, Song Ok-joo, Wi Seong-gon, Han Jeong-ae, and independent lawmaker Yoon Mi-hyang proposed an amendment to the 'Act on Protection and Support for Small Business Owners' to collect windfall taxes from oil and gas companies and use part of the proceeds to support the Small Business Market Promotion Fund. Since refiners posted astronomical results due to external factors such as the COVID-19 pandemic and the Russia-Ukraine war, the proposal aims to collect excess profits and return them to society.

Democratic Party lawmaker Yang Kyung-sook and Basic Income Party lawmaker Yong Hye-in also proposed windfall tax bills targeting companies with a tax base of over 300 billion won, including steelmakers as well as refiners.

Oil companies, while cautious about worsening public opinion, emphasize that unlike global refiners who directly drill and resell crude oil and gas, domestic companies import crude oil, process and refine it, and then sell it, thus bearing all cost burdens due to oil price fluctuations in their profit structure.

An industry insider said, "In the past, when the refining industry suffered large operating losses, there was no compensation for losses, so discussing the imposition of a windfall tax simply because the market has recovered and profits have increased is unfair. Anti-market measures that do not consider the characteristics of the industry could lead to reduced investment and production by companies as well as a decline in export competitiveness," expressing concern.