S. Korea to extend tax breaks on fuel, car purchase

Gas station [Photo by Kim Ho-young]

South Korea plans to extend tax breaks on fuel consumption and news car purchases to help reduce tax burden on consumers already feeling the pinch of inflation on their finances.

The government will extend a tax cut on fuel consumption, which is set to expire this month, until the end of April 2023, the finance ministry said on Monday, although the discount for gasoline will be adjusted in line with oil price stabilization.

Under the plan, the government will offer a tax cut of 25 percent, instead of the current 37 percent, for gasoline consumption from January to April, according to the Ministry of Economy and Finance. As a result, the gasoline consumption tax will rise slightly from the current 516 won per liter to 615 won. Still, the tax is 205 won per liter lower compared to the flexible tax rate (820 won per liter) before the tax cut was implemented to help offset the burden from oil price surges.

The 37-percent discount for consumption of relatively expensive diesel and liquefied petroleum gas (LPG) butane will be maintained through April.

As a result, diesel prices will be reduced by 212 won per liter and LPG butane by 73 won per liter.

The government will also come up with a measure to prevent oil hoarding in association with the anticipated change in the tax cut on fuel consumption. Oil refineries’ gasoline shipment for December will be limited to 115 percent of their shipment a year earlier.

As for new car purchases, the government also plans to extend the current 30 percent discount on individual consumption tax, which is also set to expire this month, through June 2023. The tax benefit was first implemented in July 2018 to stimulate passenger car consumption during low demand.

The maximum tax reduction benefit for a new car purchase is 1 million won ($770). As a result, the 5 percent individual consumption tax on car purchasing will remain at 3.5 percent, allowing car buyers to save up to 1.43 million won in total, including 1 million won in individual consumption tax and the remainder in other associated taxes.

The government will also maintain the current 15-percent tax cut for LNG and coal resources used in power generation for six months to help reduce the pressure on public utility rates.

The plan needs to be approved at a Cabinet meeting before implementation on Jan. 1.