Seoul eyes gas tax cut as crude oil prices rise

A gas station in Seoul showing current pump prices. Gasoline prices have been rising for 15 consecutive weeks, and are expected to rise further when U.S. sanctions against Iran go into effect Nov. 4. [YONHAP]

The government is planning to temporarily lower oil prices for the first in 10 years to ease the burden on small business and low income households. International crude oil prices continue to rise because of looming sanctions against Iranian oil imposed by the U.S.

“Now that the international crude price exceeds $80 per barrel, that is becoming a factor in rising gasoline prices,” said Finance Minister Kim Dong-yeon during a press briefing held at Bali, Indonesia, on Saturday where the International Monetary Fund and World Bank annual meetings are being held.

“We will be temporarily lowering fuel taxes as a means of vitalizing the economy and promoting investments to create jobs,” the minister said.

He added that the lowering of the taxes would not only ease the burden imposed on small businesses and lower income households but would also contribute to increasing disposable income.

He said the Ministry of Strategy and Economy was currently in talks with other agencies and, if agreed, the price reduction would probably be included in macroeconomic measures targeted at boosting the economy and jobs to come later this month.

The ministry said that under certain circumstances, the government could adjust gasoline prices by 30 percent. Currently, including the 26-percent value added tax, taxes account for 54.6 percent of fuel charges. Excluding the value-added tax, the basic fuel tax includes transportation, energy, environment and education taxes, and accounts for 45.5 percent of the total price of fuel sold to consumers.

Recently, international oil prices have been on the rise, especially since the U.S. government again levied sanctions against Iran, including a ban on imports of oil from Teheran. The measure goes into effect in November. The U.S. State Department said in June all its trading partners must end imports of Iranian oil by Nov. 4 or face being cut off from the U.S. financial system.

Korea is a major importer of oil from Iran, which is the world’s third-largest producer in the Organization of Petroleum Exporting Countries. Last year, crude oil from Iran accounted for 13.2 percent of all Korean oil imports. But since June, Korea has been cutting back on Iranian crude purchases.

West Texas Intermediate crude on Friday closed 0.52 percent up on the day at $71.34 per barrel. Dubai crude closed at $80.37, up 0.22 percent, and Brent crude was up 0.21 percent to $80.43.

According to the Korea National Oil Corporation, the average retail price of gasoline last week, 1,674.9 won per liter, was 15.4 won higher than during the previous week, the highest level in nearly four years. Gasoline prices have been going up for 15 consecutive weeks.

When compared to the first week of this year, when gas was 1,544.9 per liter, the price has risen more than 8 percent.

According to the Economy Ministry, a 10 percent cut in the fuel tax would lower the consumer price of gasoline by about 82 won per liter, that of diesel by 57 won and that of liquified butane, usually used for cooking, by 21 won. That’s a 4.9 percent drop from the 1,660 won per liter for gasoline on the first week of this month, 3.9 percent less for diesel and 2.2 percent less for butane.

The government lowered taxes on gasoline and diesel for two months in 2000 when the country was struggling from the financial crisis of the late 1990s. Additionally the government lowered taxes on gasoline, diesel and butane by 10 percent for roughly 10 months in 2008 when international crude prices surged to $140 per barrel.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]