Korea to cut fuel tax by maximum cap of 37%

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, right, presides over an emergency meeting of economy-related ministers at Government Complex Seoul, Sunday. Yonhap

Effectiveness questioned due to soaring energy prices

By Yi Whan-woo

The government said Sunday it will cut the fuel tax by the maximum legal cap of 37 percent from the current 30 percent, to deal more effectively with mounting inflationary pressure compounded by a steep rise in global energy and commodity prices.

Announced during an emergency meeting of economy-related ministers, the expanded tax cut policy will become effective July 1 and will last through December.

With the new decision, the fuel tax, currently set at 574 won per liter, will drop by 57 won per liter.

The measure comes as the prices of gasoline and diesel have been on an upward trajectory even after the fuel tax cut was raised to 30 percent, up from the previous 20 percent, on May 1.

According to Korea's state-run oil price information website, Friday, the average price of gasoline has risen for six consecutive weeks after dropping on the first week of May and was sold at 2,080.9 won ($1.61) per liter last week. The gasoline price has been setting new highs every day after reaching the highest level in more than 10 years on June 11.

The average price of diesel also advanced for six straight weeks to reach 2,082.7 won per liter last week. It surpassed the 2,100-won level, Friday.

Motorists fill up their tanks at a gas station in Yongin, Gyeonggi Province, Sunday. The government decided Sunday to cut the fuel tax by the maximum legal cap of 37 percent from the current 30 percent from July to ease inflationary pressure stoked by soaring energy prices. Yonhap

"The upward pressure on inflation is persistent and it is necessary to ease the burden on people's daily lives concerning high oil prices," Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said during a joint government briefing at Government Complex Seoul.

At the emergency meeting, the government also decided to double the tax deduction rate to 80 percent for credit card use for public transportation in the second half of this year.

To provide more subsidies to cargo truck drivers and others using diesel-powered vehicles, the government will lower the threshold price set for subsidy payments to 1,700 won per liter from 1,750 won per liter.

For air transportation, a 3-percent tariff quota on jet fuel for domestic airlines will be removed temporarily from August to December.

"We will continue to take prompt measures that can help stabilize prices and lift the cost burden on the public," Choo said.

Amid soaring energy prices, the nation's consumer prices rose 5.4 percent in May from a year ago, displaying the fastest growth in nearly 14 years.

Still, whether the forthcoming 37-percent fuel tax cut will successfully stem surging fuel prices remains in question, according to experts.

They noted that domestic fuel prices are heavily influenced by global oil supply and that the government's policy cannot bring expected results if the increase in crude oil prices is too high to offset the effects of the fuel tax cut.

Crude oil prices tumbled about 6 percent to a four-week low, Friday, but speculation is rampant that that they can reach $200 per barrel due to the protracted war in Ukraine, bottlenecked supply chains and other global energy risks.

Under the circumstance, Rep. Suh Byung-soo of the ruling People Power Party proposed a bill that calls for raising the legal cap on fuel tax cuts to 100 percent.

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