Tax policy for the weakest, please

Korean politicians are mentioning levying a "windfall tax" on oil companies as they benefit from high oil prices. But policymakers must first devise a tax policy for the common people who are really suffering.

KIM HYUN-YEThe author is a Tokyo correspondent of the JoongAng Ilbo. “Fill ‘er up!” When was the last time you went to a gas station to fill up on gas? Gas prices have been skyrocketing. A driver pumping gas at a gas station near Ginza, Tokyo, on June 29 felt the sting. That day, he put in about 35.44 liters. At 185 yen ($1.40) per liter, that equals a bill of about 62,565 won ($42).

The average gas price in Japan according to the Japan Resources and Energy Agency on the same day was 175 yen as of June 27. The gas price went up by 1 yen per liter, or about 9.5 won, but it caused a debate because of the tax on the gas prices. The Japanese Ministry of Economy, Trade and Industry started to provide subsidies to the industry to stabilize gas prices at the end of January. The standard for the subsidy set by the government is 170 yen per liter. If prices go beyond that, oil refiners and importers would be provided with a subsidy so that the actual price that customers purchase at gas stations would go down. Thanks to this measure, Japan’s gas prices are some of the lowest in OECD countries.

What made Japan come up with the subsidy? The structure of the Japanese oil market is easily swayed by foreign influence. Japan’s daily crude oil refining capacity is 3.29 million barrels as of 2021, lower than Korea’s 3.57 million barrels. But Japan consumes 3.34 million barrels of petroleum products daily, more than Korea’s 2.8 million barrels. In other words, it is hard for Japan to keep up with domestic demands even if it buys crude oil for refining.

The subsidy that started at 5 yen per liter has soared to 40.5 yen recently. The ministry boasted about the effect of the subsidy to lower the oil price by 39.2 yen. But consumers voiced their complaints. After the oil price rose for four consecutive weeks, critics wrote on Twitter, “Would oil prices be over 200 yen per liter without the subsidy?”

Oil prices are leaking into another debate ahead of the upper house election on July 10 over consumption tax. Opposition parties call the high price “Kishida inflation.” They proposed a cut to the consumption tax by 10 percent. One party even promised to remove all taxes on petroleum for the common people to feel the change, rather than using taxpayers’ money on price increases.

Korean politicians are mentioning levying a “windfall tax” on oil companies as they benefit from high oil prices. But policymakers must first devise a tax policy for the common people who are really suffering.