Next Month, 20% Fuel Tax Cut at Gas Stations Nationwide to Be Immediately Reflected (Comprehensive)

Hong Nam-ki, Deputy Prime Minister for Economy and Minister of Economy and Finance, is speaking while presiding over the Emergency Economic Central Countermeasures Headquarters meeting held at the Government Seoul Office in Jongno-gu, Seoul, on the 31st. Photo by Kim Hyun-min kimhyun81@

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[Asia Economy Reporter Oh Hyung-gil] Starting next month, fuel prices at approximately 2,000 nationwide budget gas stations and directly operated gas stations by oil refiners are expected to drop by about 80 won from current levels. The government has extended the fuel tax reduction, which was scheduled to end this month, by three months and increased the reduction rate from the current 20% to 30%, raising expectations that the soaring domestic fuel prices will stabilize for the time being.

On the 5th, the oil refining industry is discussing plans to lower fuel prices at directly operated gas stations starting in May in accordance with the government's new fuel tax reduction policy. An industry official said, "To alleviate the burden on consumers caused by high oil prices, we are coordinating with relevant departments to immediately lower fuel prices at directly operated gas stations in line with the government's implementation timing."

Among the approximately 12,000 gas stations nationwide, budget gas stations account for 11-12%. Directly operated gas stations are estimated to be 7-8%, so about 20% of gas stations nationwide are expected to immediately reflect the effects of the fuel tax reduction.

On the same day, the government requested the industry to promptly reflect the effects of the additional fuel tax reduction and the reduction of the liquefied petroleum gas (LPG) sales surcharge in sales prices so that consumers can immediately feel the benefits.

The Ministry of Trade, Industry and Energy held a petroleum market inspection meeting at the Coal Hall in Jongno-gu, Seoul, chaired by Yoo Beop-min, Director General of the Resource Industry Policy Bureau, to discuss measures for the swift reflection of the additional fuel tax reduction. Representatives from the Korea National Oil Corporation, the three budget supply companies (Korea National Oil Corporation, Nonghyup, Korea Expressway Corporation), SK Energy, GS Caltex, S-Oil, Hyundai Oilbank, SK Gas, and E1 attended.

Director Yoo said, "To ease the burden of rising energy prices due to the Ukraine crisis and other factors, we decided on an additional fuel tax reduction and a reduction in the LPG sales surcharge. We ask related agencies and the industry to actively cooperate so that the reduction is promptly reflected in consumer sales prices and contributes to price stabilization."

The Korea Petroleum Association stated, "Since the public is suffering from high oil prices and the government has decided on the fuel tax reduction despite the loss of tax revenue, oil refiners will actively participate and comply with the government's policy. We will cooperate so that the public can quickly feel the effects of the fuel tax reduction."

The Korea Gas Station Association, representing gas stations nationwide, also said, "We sympathize with the government's intention to reduce the fuel tax and will request cooperation from member companies to ensure that the reduction is immediately reflected in consumer prices."

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Oil refiners also immediately lowered fuel prices at directly operated gas stations during the fuel tax reductions in 2018 and last November, reflecting the reduction effects in market conditions. Although it usually takes about two weeks for products to be supplied from refineries to gas stations, the price reduction was promptly reflected as a gesture of cooperation with government policy.

However, the burden on oil refiners due to this is expected to reach several hundred billion won. SK Innovation disclosed in its Q4 earnings report last year that it incurred costs of 80 billion won related to the fuel tax reduction in its petroleum business.

If the fuel tax reduction is fully reflected in prices, fuel prices are estimated to drop by 82 won more than now. Reducing the fuel tax by 30% lowers the gasoline tax to 574 won per liter. This is 246 won (42%) lower than before the fuel tax reduction and 82 won (28%) lower than the 164 won reduction under the previous 20% rate.

Assuming a driver travels 20 km daily for a month with a fuel efficiency of 10 km per liter, it is predicted that they could save about 5,000 won on gasoline compared to the existing 20% fuel tax reduction.

Meanwhile, according to the oil price information site OPINET, the nationwide average gasoline price on this day was 1,992 won per liter, down 21 won from the previous record high of 2,003 won on April 16. Diesel was 1,912 won, 8 won lower than the previous record high of 1,920 won on March 30.

On the 12th, when the government's six-month temporary 20% fuel tax reduction began, a gas station in downtown Seoul was quiet. According to government authorities, from this day, the fuel tax on gasoline was reduced from 820 won per liter (ℓ) to 656 won, diesel from 582 won to 466 won, and LPG butane from 204 won to 164 won. It is expected to take about 1 to 2 weeks for the fuel tax reduction to be reflected in consumer prices. Photo by Moon Honam munonam@

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