Korea mulls extending fuel tax cut as oil prices remain high

A gas station in Seoul [Photo by Park Hyung-ki]

The South Korean government is moving forward with a plan to extend a fuel tax cut that is due to expire at the end of April given the difficulties faced due to the surge in oil prices although the move has caused tax revenue to fall.

The government will seriously review the calls from political circles to extend the fuel tax cut due to the burden on the public, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said in a meeting with the National Assembly’s Planning and Finance Committee on Monday.

Earlier on the same day, Park Dae-chul, the top policymaker of the ruling People Power Party, urged the government to actively consider extending the fuel tax cut, taking into account factors such as inflation, rising fuel prices and the burden on the public.

The government had planned to apply a 25 percent cut in tax for gasoline and a 37 percent cut for diesel only until the end of this month. The decision on whether to extend the reduction will be announced later this week.

However, it is likely that the government will consider reducing the tax cut. One option is to reduce the tax cut for diesel to the same level as gasoline, at 25 percent, or to reduce the tax cut for all types of fuel to a range of 15 percent to 20 percent.

The government is also expected to restore individual consumption taxes for passenger cars to their original level to offset the revenue loss from the extended fuel tax cut.

Tax revenue for this year up to February decreased by 15.7 trillion won ($11.91 billion) from a year ago. Even if the same amount is collected between March and December this year as in 2022, there will still be a shortfall of around 20 trillion won in tax gains this year.