Reducing Fuel Tax Cut Benefits... Gasoline 20%→15%, Diesel & LPG 30%→23%

The Ministry of Economy and Finance announced on the 23rd that the fuel tax reduction rate for gasoline will be reduced from the current 25% to 20%, and for diesel and liquefied petroleum gas (LPG) butane from 30% to 23%.

According to this adjustment, the fuel tax applied to gasoline will increase by 42 won, from 656 won per liter to 698 won. The fuel tax for diesel and LPG butane will rise by 41 won and 14 won, respectively, to 448 won and 156 won. The reduced rates will be applied until the end of this year.

The Ministry of Economy and Finance plans to revise the related laws for the fuel tax reduction rate adjustment, announce the legislative proposal, and implement it from November after the Cabinet meeting.

The fuel tax reduction measure began in November 2021 when international oil prices surged sharply. At that time, the reduction rate was 20%, and it was extended 11 times over three years with repeated adjustments. The reduction rate increased to 30% in May 2022 and further to 37% in July of the same year. Since January last year, a differentiated rate of 25% for gasoline and 37% for diesel and LPG butane was applied, and the current fuel tax rates have been in effect since July.

The reason for reducing the fuel tax cut is due to stable inflation. Last month, the consumer price inflation rate was 1.6%, entering the 1% range for the first time in three and a half years. In particular, international oil prices have stabilized at around 70 dollars per barrel. Domestic petroleum prices also fell by 7.6% compared to the previous year, contributing to lowering inflation by 0.32 percentage points.

The tight tax revenue situation also appears to have been considered. According to the Ministry of Economy and Finance, this year's national tax revenue is expected to be 337.7 trillion won. This is 29.6 trillion won less than the government budget of 367.3 trillion won, with a tax revenue error rate of 8.1%. In particular, the transportation energy environment tax was expected to collect 15.3 trillion won but was revised to 11.2 trillion won through tax revenue re-estimation. The Ministry expects that the adjustment of the reduction rate will have a positive impact on securing tax revenue by the end of the year.