Prices May Rise to 3% Again... Government Extends Fuel Tax Cut 'Until April'

The government has ultimately extended the planned fuel tax reduction scheduled for the end of this month. As domestic gasoline prices turned upward amid unstable international oil prices, concerns that inflation, which had slowed to the 2% range since the new year, could rise back to the 3% range appear to have contributed to this decision.

The Ministry of Economy and Finance announced that it will issue a legislative notice to extend the temporary fuel tax reduction for an additional two months through amendments to the 'Transportation·Energy·Environment Tax Act Enforcement Decree' and the 'Individual Consumption Tax Act Enforcement Decree,' both scheduled for the 19th.

[Image source=Yonhap News]

The temporary fuel tax reduction, first introduced during the COVID-19 period in 2021, has been extended eight times and continues to this day. From November 12, 2021, to April 30, 2022, the reduction rate was 20%, and from May 1 to June 30 of the same year, it increased to 30%.

From July of the same year, the reduction rate was expanded to 37%, and this 37% reduction rate was applied until the end of 2022.

However, starting January 1 of last year, the fuel tax reduction rate for gasoline was changed to 25%, while the 37% reduction rate was maintained for other fuels such as diesel. Before the reduction, fuel taxes were 820 KRW, 581 KRW, and 203 KRW per liter (ℓ), respectively, and currently, they have been reduced to 615 KRW, 369 KRW, and 130 KRW, resulting in a decrease of 205 KRW, 212 KRW, and 73 KRW per liter compared to before the reduction.

The extension of the fuel tax reduction was somewhat anticipated in remarks made earlier this month by Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok. On the 2nd, while presiding over an emergency economic ministers' meeting and a price-related ministers' meeting, Deputy Prime Minister Choi stated, "Although consumer prices recorded 2.8% in January, due to recent instability in the Middle East and the international oil price rising back to the $80 range, inflation in February and March could rise again to around 3%."

At a press conference with reporters on the 16th, Deputy Prime Minister Choi also said, "Since international and domestic oil prices have recently turned upward again, extending the fuel tax reduction is inevitable," explaining that the tax cut was due to concerns over the rising trend in international oil prices.

Dubai crude oil, which broadly influences domestic fuel prices such as gasoline and diesel, occasionally dropped to around $70 per barrel earlier this month but has maintained the low $80 range. According to the Korea National Oil Corporation's oil price information system Opinet, Dubai crude recorded $81.02 per barrel on the 9th, just before the Lunar New Year, rose to $81.90 on the 13th, and $82.45 on the 14th. It was $80.57 on the 15th as well.

Brent crude also reached $82.86 on the 15th, the highest level this month, and West Texas Intermediate (WTI) crude rose to $78.03, also the highest level this month.