Inflation at 3% for 5 Consecutive Months... Government Considering Expanding Fuel Tax Reduction

Average Nationwide Gasoline Price on the 6th at 1,811 Won... Surpasses Last November's Peak

A gas station in downtown Seoul / Photo by Mun Ho-nam munonam@

[Asia Economy Sejong=Reporter Son Seonhee] Consumer prices have recorded a high increase rate in the 3% range for five consecutive months. In addition, due to recent geopolitical risks in the Russia-Ukraine region, international oil prices are soaring again. Considering the time lag until it is reflected in domestic fuel prices, petroleum-centered prices are expected to rise again around next month. The government is considering expanding the current 20% fuel tax reduction rate to a maximum of 30%.

According to the Ministry of Economy and Finance on the 6th, the government has decided to extend the fuel tax reduction measure for an additional three months until the end of July and is also reviewing plans to expand the reduction rate. The Transportation Energy and Environment Tax Act allows adjustment of the tax rate and application period within 30% of the statutory tax rate depending on economic conditions.

The government reduced the fuel tax by 20% starting November 12 last year. When purchasing 1 liter of gasoline, a total of 820 won in taxes (excluding other VAT) is applied, including 529 won of transportation, energy, and environment tax (transport tax), 138 won of driving tax (26% of transport tax), 79 won of education tax (15% of transport tax), and VAT equivalent to 10% of the fuel tax. Due to the government's 20% fuel tax reduction, the current tax per liter of gasoline is 423 won for transport tax, 110 won for driving tax, 63 won for education tax, and a total of 656 won including VAT, which is 164 won lower than before.

However, as international oil prices recently continue to surge beyond $100 per barrel, the actual effect of the fuel tax reduction has disappeared. As of this day, the nationwide average gasoline price is 1,811.31 won per liter, already surpassing the highest price last November (1,807 won/liter).

Accordingly, the government is expected to take out the card of extending the fuel tax reduction period along with expanding the reduction rate. If the government raises the reduction rate to the maximum possible 30% through a revision of the enforcement ordinance, the tax per liter of gasoline will decrease to 574 won. This means a further reduction of 82 won compared to the 20% reduction rate.

However, with the next presidential election just three days away, it is uncertain whether the new government will actually implement such an expansion of the fuel tax reduction rate. Given the high volatility due to external risks, the government is expected to continuously monitor oil price trends before making a decision. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said, "If international oil prices rise sharply beyond the current level and economic uncertainty expands further, we will consider whether to expand the fuel tax reduction rate."

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