Fuel tax cut extended by 2 months amid Middle East tensions

The government has extended the fuel tax cut to the end of June as oil prices fluctuate with escalating tension in the Middle East.

Gasoline prices are shown at a gas station in Seoul on Sunday. [NEWS1]

The government has extended the fuel tax cut by two months until the end of June in an effort to lessen the burden on households amid surging geopolitical tension in the Middle East and rising oil and gas prices across the globe.

The announcement was made by Finance Minister Choi Sang-mok during an emergency ministerial meeting on economic affairs held at the government complex in central Seoul on Monday.

"The government will enact an additional extension of the tax cut on fuel consumption and the price-linked subsidies on diesel and compressed natural gas (CNG) to mitigate the burden on livelihoods,” said Choi in his opening remarks.

The current fuel tax stands at 615 won (44 cents) per liter of gasoline, a 25 percent reduction compared to the standard rate. Additionally, government subsidies for diesel and CNG prices above a certain threshold will be extended for another two months.

The government previously extended the fuel tax cut by two months in March, and has applied a 25 percent discount on gasoline and a 37 percent discount on diesel and liquefied petroleum gas. The current tax cut was to expire by the end of this month.

The most recent decision marks the ninth fuel cut extension since November 2021, when inflation surged amid the raging Covid-19 pandemic. The government had previously implemented a record 37 percent tax reduction, which was later adjusted to 25 percent from Jan. 1 of this year.

The average gasoline price in Korea rose to the year's peak of 1,690.8 won per liter Monday, up 7 percent since the beginning of the year, data compiled by oil price tracker Opinet showed.

The price of Dubai crude stood at $90.48 per barrel on Friday, compared to $78.1 on Jan. 2, according to the latest data from Petronet. The monthly average was $78.85 in January and $77.33 in December.

The finance minister signaled an extension of the tax cut back in March, saying that “the government will make all-out efforts to achieve a 2 percent inflation level at an early date.”

The ministry forecasts the country’s inflation to come in at 2.6 percent this year.

Korea’s headline inflation has accelerated since February, with consumer prices rising 3.1 percent on year in March, going above the 3 percent threshold for the second consecutive month following February’s 3.1 percent.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]