South Korea is considering lowering taxes on oil products to ease consumer burden from surging retail prices as international crude oil prices are unlikely to fall in the near future, Economy-Finance Minister Hong Nam-ki said Oct. 20.
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South Korea's Economy-Finance Minister Hong Nam-ki said Oct. 20 that the government is considering lowering taxes on oil products to ease consumer burdens from surging pump prices, noting international crude oil prices are unlikely to go down in the near future.
The ministry will unveil its measures as early as next week, Hong said in a parliamentary audit.
"As the international oil prices have been on the sharp rise, pushing up domestic gasoline prices and putting upward pressure on consumer prices, we are considering an oil tax cut in a preemptive measure," Hong said.
"As international crude prices have exceeded $80/b, relevant actions will be taken within ten days, or next week," he said.
Retail oil prices have climbed steadily for the past year in line with international crude futures.
Gasoline pump prices averaged Won 1,687/liter ($1.44/liter) in the second week of October, up 26.4% from Won 1,335/liter a year earlier, according to state-run Korea National Oil Corp.
Pump prices for gasoil jumped 30.7% year on year to average Won 1,484/l in the second week of October, compared with Won 1,135/l a year earlier.
Taxes account for 55% of the retail gasoline price, 46% of the gasoil price, and 30% of the butane price, which has prompted consumers to ask for a tax reduction.
Domestic oil taxes are included in the transport tax, driving tax, consumption tax, education tax and value added tax.
The government lowered taxes on auto fuels by 7%-15% for ten months from November 2017 to August 2018 in a response to hikes in international crude prices.
At that time, the ten-month tax cut amounted to a Won 2 trillion reduction in tax revenue for the government. The Economy-Finance ministry has long been reluctant to lower oil taxes as the government needed more tax revenues to meet President Moon Jae-in's promise of bigger expenditures for welfare programs.
A possible tax cut is expected to boost the country's oil products demand, which has recently recovered from the prolonged pandemic.
The country consumed 612.808 million barrels of refined petroleum products for the first eight months this year, up 4.1% from 588.45 million barrels in the year-ago period, when oil demand dropped due to the coronavirus outbreak, according to KNOC.
In 2020, oil products demand dipped 5.8% year on year to 878.08 million barrels.