Major Opposition Party Proposes Excess Profit Tax, Oil Industry on 'Needle Seat' (Comprehensive)

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

A gas station in Seoul on the 19th. As fuel prices continue to soar, the government is considering lowering the fuel tax cut to the legal maximum limit. The government is finalizing plans to reduce the fuel tax to the legal maximum of 37% and is expected to announce this as early as today through the 1st Emergency Economic Ministers' Meeting. Photo by Kim Hyun-min kimhyun81@

[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 consumers will hardly feel the effect.

If the government fails to curb fuel prices even with this last resort, it will have to consider stronger measures. At this moment, the major opposition party, the Democratic Party, has announced plans to consider introducing an excess profit tax on refiners, putting the industry in a difficult position.

Refining companies, which are recording 'record-breaking' profits, find themselves having to watch political developments closely as Europe and now the United States introduce excess profit recovery systems for energy companies.

Park Hong-geun, floor leader of the Democratic Party, said at a party strategy meeting held at the National Assembly on the 21st, "The Democratic Party will immediately push for amendments to related laws to lower gasoline and diesel prices by more than 200 won so that the public can feel the impact, rather than implementing piecemeal measures," adding, "We will also demand pain-sharing from the refining industry, which is posting record-high profits."

The Democratic Party plans to consider the so-called 'windfall tax,' that is, an excess profit tax. This includes measures to minimize refiners' excess profits or recover profits through fund contributions.

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

Additionally, the government is considering increasing the cut by adjusting the fuel tax's flexible tax rate. Among the fuel taxes, the transportation tax currently 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 would drop to 516 won. This is expected to provide an additional 7% reduction compared to the current 30% cut.

However, the additional cut amounts to 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 difficult for consumers to feel the effect of the cut. Moreover, international oil prices have recently soared above 120 dollars per barrel, further fueling price increases.

Professor Son Yang-hoon of Incheon National University pointed out, "Even with a 30% fuel tax cut, fuel prices have exceeded 2,000 won. If the cut is increased to 40% or 50%, there will be a problem with tax revenue shortages," adding, "The range that can be solved by providing supplementary benefits has already passed."

In similar situations, Europe and the United States are pushing for taxation on excess profits of energy companies. The U.S. Democratic Party is currently promoting a bill to impose a kind of punitive tax on oil companies, aiming to increase taxes on companies earning excess profits.

[Image source=Yonhap News]

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

Last month, the United Kingdom announced support measures 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 an excess profit tax on financial and energy companies, and Italy has also raised tax rates to recover excess profits from energy companies benefiting from soaring 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 posting strong performances due to the rise in international oil prices. ExxonMobil achieved a net profit of 5.5 billion dollars in the first quarter of this year, a 103% increase from the same period last year, while Chevron's net profit surged nearly fourfold to 6.5 billion dollars from 1.7 billion dollars 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, so far, there have been no voices from our government or political circles calling for the introduction of an excess profit tax.

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

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