The South Korean government has decided to cut down on fuel taxes temporarily in order to ease the impact of surging oil prices on the country’s consumer inflation and people’s lives.
The government officials mentioned a 20 percent reduction in taxes on gasoline, diesel and liquefied petroleum gas (LPG) that will remain in place for six months until the end of April next year.
Hence forth, the fuel tax on gasoline under the move drops to 656 won (US$0.55) per liter from 820 won, with that on diesel falling to 466 won from 582 won. Taxes account for around 40 percent of domestic gasoline prices.
According to industry watchers, the reduction on taxes will likely take a couple of weeks for local gas stations to reflect in their prices.
While local petrol stations are reported of being infamous for raising prices fuel prices quickly during international oil cost hike and slow in bringing down prices when crude costs less.
The government and the ruling party in late October had already agreed to cut fuel taxes as international oil prices that soared to a near three-year high amid the global economic recovery from the pandemic.
South Korea’s benchmark, prices of Dubai crude hit a record $83.89 per barrel on Oct. 18, up from an average of $72.63 in September. The economy depends on imports for almost all of its energy needs.
According to data compiled by the state-run Korea National Oil Corp., the average gas price surged to 1,810 won per liter Thursday, up 116 won from Oct. 13.
The country is currently faced with rising consumer inflation. In September, the consumer prices rose 2.5 percent on-year due to high prices of farm and oil products, up more than 2 percent for the sixth straight month.
According to data, over the six months, the fuel tax cut is predicted to reduce the government’s tax revenue by 2.5 trillion won (US$2.1 billion), while driving down the country’s consumer inflation rate by 0.33 percentage point.
The country had last cut fuel taxes by 15 percent in November 2018 for six months as oil prices exceeded $80 per barrel. The tax benefits then ended in August 2019.