Even with the Largest Cut in Fuel Tax, Only 82 Won Reduction

National Gasoline Prices Exceed 1800 Won

[Asia Economy Sejong=Reporters Son Seon-hee and Jeong Dong-hoon] Due to the surge in international oil prices following Russia's invasion of Ukraine, the average nationwide gasoline price has exceeded 1,800 KRW per liter. This is the first time in about four months since November last year. It has also surpassed the domestic average gasoline price just before the government's fuel tax reduction measure. Although the government has once again pulled out the 'fuel tax reduction' card, the prevailing view is that the actual perceived effect will be minimal amid expectations of continued price increases.

According to the Korea National Oil Corporation's oil price information site Opinet on the 7th, the average gasoline selling price at gas stations nationwide recorded 1,819.10 KRW per liter. This is the highest level in about seven and a half years since September 16, 2014 (1,815 KRW).

The average gasoline price in Jeju region reached 1,919 KRW per liter, already breaking the 1,900 KRW mark and becoming the most expensive in the country. Seoul was the second highest at 1,892 KRW. Domestic gasoline prices had fallen for nine consecutive weeks following the fuel tax reduction measure implemented in mid-November last year but turned to an upward trend earlier this year.

Gasoline prices have risen by more than 20 KRW per liter each week for the past four consecutive weeks, and in the last three days, the daily increase has accelerated to more than 10 KRW per day. This surpasses the 1,810 KRW price (as of November 11, 2021) when the government applied the fuel tax reduction measure last year.

The domestic industrial sector is on high alert. With major raw materials such as crude oil, natural gas, minerals, and grains all soaring simultaneously, concerns are emerging inside and outside the industry that a massive economic shock similar to the 1970s 'Oil Shock' might be repeated. The prolonged atmosphere of the war further heightens the sense of crisis. An industry insider expressed concern, saying, "There is a growing fear that 'stagflation,' where inflation and rapid economic slowdown occur simultaneously as during the Oil Shock, could happen. Both households and companies are likely to reduce consumption due to the significant impact of rising prices."

As oil prices soar, the government has once again pulled out the 'fuel tax reduction' card. The existing 20% reduction measure will be extended for three more months until the end of July, and the government plans to consider expanding the reduction rate depending on future oil price trends. The additional reduction is likely to apply the maximum rate of 30%, which is allowed under current law based on the statutory tax rate. If the maximum 30% reduction rate is applied, the actual additional reduction amount is estimated to be about 82 KRW per liter for gasoline (based on the flexible tax rate). For a mid-sized car refueling 50 liters, this results in a reduction effect of about 4,100 KRW.

However, even if the maximum reduction allowed under current law is applied, the problem is that the actual perceived effect will be minimal if the current upward trend in oil prices continues. The fact that the 30% reduction rate is practically the last card is also a concern for the government. If oil prices do not stabilize even after reducing the tax rate by 30% based on the statutory tax rate, there will be no possible policy measures left except for amending the law.

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