[Stranded Industry, Government Tightening] Refining Sector Faces Record Losses This Year... To Make Matters Worse, Tax Bombshell

Four Major Oil Refiners Expected to Post 5 Trillion Won Deficit This Year
Average Operating Rate of Four Major Oil Refiners in October at 71.5%

[Asia Economy Reporter Hwang Yoon-joo] It is estimated that the four domestic oil refining companies will incur a record loss of around 5 trillion won this year. The operating rate of crude oil refining facilities in the oil refining industry also dropped to an all-time low of 71%. This is the direct impact of the novel coronavirus disease (COVID-19). To make matters worse, the tax burden is also increasing. The National Assembly is discussing populist legislation under the name of environmental charges for oil companies in line with the eco-friendly policy direction. With the already heavy tax burden, the addition of new taxes is expected to further deteriorate the competitiveness of domestic oil refining companies.

According to the industry on the 27th, domestic oil refining companies are expected to record disappointing performance in the fourth quarter as well. The combined loss of the four oil refining companies up to the third quarter was 4.8074 trillion won. With the rapid spread of the third wave of COVID-19 worldwide since the end of the year, concerns are growing that the annual loss this year could exceed 5 trillion won.

The oil refining industry has taken drastic measures to minimize losses by reducing factory operating rates, but the effect has been limited. According to the Korea National Oil Corporation, the operating rate of crude oil refining facilities in the domestic oil refining industry was recorded at 71.55% as of October, the lowest since records began. The operating rates of the four oil refining companies have continuously decreased from 83.78% (January) to 75.41% (June) and 72.10% (September) this year. In the case of SK Innovation, the crude oil refining operating rate was lowered to the 60% range last month.

The problem is that the tax burden is increasing in this situation. According to the National Tax Service's tax revenue performance data, the taxes borne by the oil refining industry as of 2019 amount to a total of 20.5 trillion won, including transportation energy environment tax, education tax, and driving tax. In addition, they bear an additional customs duty of about 1 trillion won.

Despite the already excessive tax burden, discussions on additional taxes are underway. Recently, the Presidential Advisory Committee on National Climate and Environment officially proposed to the government an increase in diesel tax to reduce fine dust (transportation sector). The National Assembly's Administrative Safety Committee is discussing an amendment to the Local Tax Act. The amendment includes imposing a local resource facility tax of 1 won per liter on products produced at oil refining facilities and a tax of 1 won per kilogram on the amount of hazardous chemicals handled by companies located in national industrial complexes. If the bill passes, oil refining companies will inevitably face an additional annual tax burden of 200 billion won.

The oil refining industry is calling for at least an adjustment of unfair tax policies. A representative case is the 'individual consumption tax (excise tax) on fuel oil for raw materials,' which has been controversial for 'double taxation' since 2015. The National Assembly's Planning and Finance Committee plans to review a bill in the Tax Subcommittee that conditionally exempts the individual consumption tax imposed on fuel oil for raw materials. An industry official said, "It is a situation where it does not even receive attention due to being overshadowed by other bills," adding, "To prevent the oil refining industry from being deprived of the opportunity to innovate in line with the flow of change, policies that reduce the burden even slightly are needed at this time."

This content was produced with the assistance of AI translation services.