Seoul decides to extend fuel tax cuts for another four months

A gas station in Seoul on April 18. [Photo by Yonhap]

The South Korean government has decided to extend a fuel tax reduction, which was set to expire at the end of this month, until August as the general public continues to struggle from high costs.

As a result, the reduced tax rate of 25 percent for gasoline and 37 percent for diesel and LPG will continue until Aug. 31. There had been speculation that the fuel tax cuts could end as planned due to concerns that they would reduce the government’s tax income.

The extension of the tax reduction was a measure taken to prioritize easing the economic burden on low-income households, despite the recent difficult financial circumstances, a government official from the Ministry of Economy and Finance said on Tuesday.

The decision was also made in consideration of the continuous rise in domestic fuel prices following the announcement of oil production cuts by the Organization of the Petroleum Exporting Countries, among other factors, the official added.

The government considered reducing the cut due to concerns about lower tax revenues, but decided to keep it unchanged given that oil prices have continued to rise since the announcement of crude production cuts.

As a result of the extension, the reduction effect in fuel prices will remain at 205 won ($0.16) per liter for gasoline, 212 won per liter for diesel and 73 won per liter for liquefied petroleum gas for the next four months.

The reduction in fuel taxes was initially implemented in November 2021 when gasoline prices exceeded the 1,800 won mark due to the surge in crude prices. The reduction rate started at 20 percent but was increased to 30 percent in May 2022. In July the same year, the rate was further expanded to 37 percent with the application of the tax elasticity rate. From this year onwards, the reduction for gasoline was reduced to 25 percent, while the rate for diesel and LPG was maintained at 37 percent.