Despite Falling Oil Prices,
Fuel Tax Cut Extended Until Year-End Due to Exchange Rate Pressures
The government has decided to extend the temporary reduction of fuel taxes, which was originally set to expire at the end of this month, for an additional two months until the end of December. However, the reduction rate will be partially rolled back. This decision comes as international oil prices have been on a downward trend, but increased volatility in the exchange rate, which affects the price of imported crude oil, could act as a factor driving inflation.
The Ministry of Economy and Finance announced on the 22nd that it plans to issue a legislative notice regarding amendments to the Enforcement Decree of the Transportation, Energy, and Environment Tax Act and the Enforcement Decree of the Individual Consumption Tax Act from the 23rd to the 24th. The amendments are scheduled to take effect on November 1 after passing through the Cabinet meeting and other procedures. This marks the 18th extension of the sunset provision since the temporary fuel tax cut was first introduced in November 2021.
Currently, the fuel tax is being applied at a flexible rate, with gasoline taxed at 738 won per liter, reflecting a 10% reduction. Diesel and liquefied petroleum gas (LPG) butane are taxed at 494 won and 173 won per liter, respectively, reflecting a 15% reduction.
With this new measure, the reduction rate for gasoline will be decreased from 10% to 7%, and for diesel and butane, the reduction rate will be reduced from 15% to 10%. As a result, starting next month, gasoline will be taxed at 763 won per liter and diesel at 523 won per liter, representing increases of 25 won and 29 won, respectively, compared to the previous month. Butane will also increase by 10 won to 183 won per liter. This reduction measure will remain in effect until the end of December.
The government implemented the temporary fuel tax cut in November 2021 in response to the spread of the COVID-19 pandemic and the surge in international oil prices. Since then, the measure has been extended in increments of two to six months. To stabilize prices, the government expanded the reduction rate for gasoline and diesel to as much as 37% in July 2022, but has gradually reduced the rate while extending the sunset deadline since last year.
This measure takes into account uncertainties in international oil prices and exchange rates. The Ministry of Economy and Finance explained, "While we are moving to roll back the fuel tax reduction, taking into consideration recent trends in oil prices and inflation as well as the impact on government finances, we have decided on only a partial rollback to avoid significantly increasing the public's fuel costs."
Additionally, to prevent hoarding and speculative practices in response to the partial rollback of fuel taxes, the government will implement a related notification starting today. For this month, oil refiners and others will face temporary restrictions on the volume of fuel they can ship. Shipments of gasoline and diesel will be limited to 115% of the volume in the same period last year, and LPG butane to 120%. Practices such as refusing to sell without valid reasons or excessively shipping to specific companies are prohibited.
A Ministry of Economy and Finance official stated, "To prevent consumer harm caused by hoarding and speculative practices, we plan to strictly monitor such activities in cooperation with the Ministry of Trade, Industry and Energy, the National Tax Service, and the Korea Customs Service."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
