Refining Industry on Edge as Excess Profit Tax Introduced in EU and US

Maximum Cut in Fuel Tax Insufficient to Curb Gas Prices
US Pushes Tax on Excess Profits of Oil Companies like Exxon
UK Announces 25% Tax on Oil and Gas Firms

[Asia Economy Reporter Oh Hyung-gil] As the government considers lowering the fuel tax cut to the legal maximum limit as a measure against high oil prices, the refining industry is also becoming tense. Although the intention is to increase the fuel tax cut from the current 30% to 37% to reduce prices, there are criticisms that it is insufficient for consumers to feel the impact.

If the government fails to curb oil prices even with what is essentially its last card, it will need to consider stronger measures, putting refiners, who are recording "record-breaking" profits, in a difficult position. Following Europe, the U.S. is also introducing excess profit recovery systems for energy companies, making it inevitable for refiners to be cautious.

According to the industry on the 21st, the 30% fuel tax cut on gasoline, diesel, and LPG (liquefied petroleum gas) will be extended until the end of the year. Although this is the largest cut ever, the effect of the reduction has been offset by rising international oil prices.

Additionally, the government is considering adjusting the flexible fuel tax rate to increase the cut. Currently, the transportation tax within the fuel tax applies a flexible tax rate (529 won per liter) higher than the statutory rate (475 won per liter). If the 30% cut is applied based on the statutory rate, the fuel tax will drop to 516 won per liter. It is expected that an additional 7% reduction effect can be achieved compared to the 30% cut.

However, the additional cut is only 57 won per liter, which is far from enough to ease the burden of fuel prices. With nationwide gasoline and diesel prices exceeding 2,000 won per liter, it is not easy for consumers to feel the reduction. Especially, international oil prices have recently soared above $120 per barrel, further fueling price increases.

Professor Son Yang-hoon of Incheon National University said, "Even though the fuel tax was cut by 30%, with oil prices exceeding 2,000 won, reducing it by 40% or 50% would face issues of tax revenue shortage," adding, "The range that can be solved by providing supplementary benefits has already passed."

[Image source=Yonhap News]

In similar circumstances, Europe and the U.S. are pushing for taxation on excess profits of energy companies. The U.S. Democratic Party is promoting a bill to impose a kind of punitive tax targeting oil companies by increasing taxes on companies earning excess profits.

U.S. President Joe Biden also criticized, "ExxonMobil made more money last year than God. They earn more by not producing oil and even buy back their own products to avoid taxes."

Last month, the UK announced a support plan to reduce household burdens caused by soaring energy bills and imposed a 25% excess profit tax on oil and gas companies. Hungary plans to secure 2.8 trillion won in finances by imposing excess profit taxes on financial and energy companies, and Italy has also raised tax rates to recover excess profits from energy companies benefiting from the surge in natural gas prices.

These moves aim to reduce household burdens by collecting excess profits from energy companies that unexpectedly benefited from the surge in international oil prices. Global refiners are recording strong performances due to the rise in international oil prices. ExxonMobil achieved a net profit of $5.5 billion in the first quarter of this year, a 103% increase from the same period last year, and Chevron's net profit surged nearly fourfold to $6.5 billion from $1.7 billion in the same period last year.

Domestic refiners are in a similar situation. In the first quarter of this year, three out of four refiners exceeded 1 trillion won in operating profit, and strong performances are expected in the second quarter as well. However, there is no voice yet from the Korean government or political circles regarding the introduction of excess profit taxation.

The refining industry has rebutted that the excess profit tax is purely politically motivated. A refining industry official said, "If taxes are collected just because profits are good, then the government wouldn't help when profits are poor," adding, "We already pay tariffs corresponding to the increase in crude oil import prices, so it could be considered double taxation."

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