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Lower tax on oil purchases

Published: 06 Jun. 2007, 21:29

Oil prices are unreasonably high. The price of gasoline have gone up for 16 straight weeks to more than 1,600 won per liter ($6.54 per gallon), but the government has no plans to lower taxes imposed on oil purchases. During this period international oil prices rose by 16 percent, but domestic oil companies raised their factory prices by 32 percent. Last week, the oil firms lowered their factory gate prices by 4 won per liter, but oil prices for consumers at gas stations rose by 4 won per liter. This year, prices for car fuel surged by 7.8 percent until May. That increase is more than four times the increase in consumer prices.
The government and oil companies blame each other. The government says oil firms inflate factory gate prices. Oil firms say the tax on oil is excessively high.
It is clear that too much tax is imposed on oil, including tax on transportation and driving, education tax and value added tax. Comparing the gross national income in each country, if the gas price in Korea is 100, the price in the United States is 17, in Japan 31 and in Germany 46. From next month, the tax on gas will be increased by 35 won per liter in Korea. It makes one wonder if we are buying gas or paying tax.
The tax revenue from oil was 26 trillion won last year. The revenue increased by 10 trillion won in six years. The secretary general of the International Energy Agency even said that taxes on energy must not distort energy prices.
Because pubic opinion goes against this trend, the Korean government came up with a trick. It plans to lower the tariff on imported finished oil products from 5 percent to 3 percent. But imported finished oil products have less than 2 percent of the market. This moves simply patronizes people. Oil companies cannot blame the government and international oil prices. Korean oil firms’ factory gate prices are more than double the international oil prices. When international oil prices go up, the Korean companies raise their prices immediately. But when international oil prices go down, the same companies are reluctant to change their prices. The people suffer, stuck between a brazen government and greedy oil companies.
The government must stop thinking about collecting tax the easy way. It must lower the tax on oil purchases immediately. If revenue comes up short, it must cut down on careless spending. If consumer oil prices still do not go down, it must investigate the distribution structure between oil firms and gas stations for any indications of price fixing.