Unsettling Gasoline Prices... Will the 'Fuel Tax Reduction' Be Extended?

Some Areas Exceed 1,600 Won per Liter
Concerns Over Price Impact Amid Oil Price Instability
Government Carefully Reviews Tax Cut Burden

As international oil prices fluctuate and domestic gasoline prices turn upward, attention is focused on whether the temporary fuel tax reduction, scheduled to end at the end of this month, will be extended. This is because stabilizing fuel prices, which affect inflation in various ways, is essential for the government to maintain its inflation stabilization policy in the 2% range. However, with tax revenue deficits continuing for two consecutive years, it is not easy to continue the tax revenue reduction measure amounting to 9 trillion won (over 14 months).

According to Opinet, the oil price information service of the Korea National Oil Corporation, on the 6th, the gasoline price rose by 1.38 won from the previous day to 1,595.48 won per liter, approaching the 1,600 won mark. In the Seoul, Gyeonggi, Gangwon, Chungbuk, and Jeju regions, prices have already exceeded 1,600 won. Gasoline prices, which had been falling for 16 consecutive weeks since October last year, turned upward after 17 weeks due to concerns over the expansion of the Middle East conflict and fluctuations in international oil prices. The average selling price for the fifth week of last month recorded 1,579 won per liter, up 15.3 won from the previous week.

On the 6th, the average retail price of gasoline at gas stations reversed to an upward trend after 17 weeks. At a gas station in Seoul, gasoline is being sold at 1,609 won per liter, and diesel at 1,539 won per liter. Photo by Jinhyung Kang aymsdream@

International oil prices rebounded after four days. This was due to the first U.S. military casualty in the Middle East conflict and subsequent U.S. retaliatory attacks. On the 5th (local time), the price of West Texas Intermediate (WTI) crude oil for March delivery closed at $72.83 per barrel, up $0.55 (0.76%) from the previous day, and Brent crude oil for April delivery closed at $78.06 per barrel, up $3.41 (0.73%). Although the possibility of the Middle East conflict escalating remains low, growing concerns are gradually pushing oil prices higher.

Since international oil prices are reflected in domestic fuel prices with a lag of about 2 to 3 weeks, domestic gasoline prices are likely to continue rising for the time being. The problem is that the temporary fuel tax reduction, which has contributed to keeping domestic gasoline prices low, is set to end at the end of February. If the fuel tax reduction measure disappears, the increase in gasoline prices could accelerate, potentially pushing the inflation rate, which had stabilized, back up to the 3% range.

This is why there is growing weight on the possibility of continuing the fuel tax reduction measure this time as well. The temporary fuel tax reduction, introduced in November 2021, has been extended seven times even after the change of administration. However, the government is taking a cautious stance. A Ministry of Economy and Finance official said, "Regarding the fuel tax reduction, we maintain the position of comprehensively reviewing oil prices and inflation before making a decision."

With tax revenue deficits occurring for two consecutive years for the first time in nine years, and several tax reduction measures introduced in this year's economic policy direction, there is considerable burden in continuing large-scale tax cuts. The estimated tax revenue loss due to the fuel tax reduction from January 2021 to December 2022 over 14 months is 9 trillion won. In the National Assembly, there are criticisms that the fuel tax reduction over the past two years has only fattened the profits of oil refiners. Jang Hye-young, a Justice Party lawmaker, analyzed the effect of the fuel tax reduction from 2021 to last year and pointed out that only 138 won (61%) of the 225 won fuel tax reduction was reflected in the selling price, indicating that oil refiners took a significant portion of the benefits from the fuel tax reduction.

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