[Viewpoint] The gasoline tax should be abolished

The figures of 3 percent and 50 percent represent the profit margin of domestic oil refiners and the sales tax on gasoline, respectively. Oil refiners have become the scapegoats of economic ministers grappling with a hopeless fight against inflation. Forget the Goliath 50 percent figure, as it is easier to pick a fight with the weaker contender, especially when one is just pretending to be aggressive.

The 3 percent margin means that refiners earn just 3 won in net profit for each 100 won in sales. They fare poorly compared to steelmaker Posco, whose profit margin is at 18.8 percent; Samsung Electronics, which is at 12.7 percent; and NHN, which operates portal site Naver, at 40 percent.

The government’s arm-twisting campaign against oil refiners is as cheap as hitting the rich taxpayers in Gangnam, southern Seoul, as the former administration did. It more or less comes down to the unreasonable logic that says those who are better off should pay more. Since the government is in an uncompromising mood, it doesn’t buy the industry’s argument that the small profit it makes mostly comes from overseas, and not at home. Few are aware that SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank are big exporters.

Exports of petrochemical products ranked sixth among top Korean exports following semiconductors, ships, machinery, chemical products and automobiles. They process and refine imported crude oil to more useful liquefied petroleum gas, gasoline, diesel oil and other fuel oils and ship them to China and Southeast Asian countries. Through overseas sales, they recover 47 percent of their dollar spending on imported crude stock.

In 2008, petrochemical products were the second largest Korean export. The four refiners turned a country that does not produce one drop of oil into a major petroleum exporter. The economic ministers could not reach their high position without knowing this fact. But why are they making them scapegoats? The only explanation is to gain scores with their boss - the president. They do not care about the economic consequences as long as they look good in his eyes and are allowed to keep their seats.

But they must remember that the industry can bite too. Oh Kang-hyun, chairman of the Korea Petroleum Association, rejected the finance minister’s recent comment that the domestic pre-tax price of gasoline is higher than the average for the member countries of the Organisation for Economic Co-operation and Development. “When prices of similar quality gasoline products are compared, local prices are in fact 28.4 won cheaper per liter,” he argued. Finance Minister Yoon Jeung-hyun recently lashed out at the “incomprehensible pricing by local the industry,” saying the pre-tax price of gasoline costs 1,047 won, which is 13.5 percent higher than the OECD average.

But the oil product that the minister cited was the most expensive one offered in gas stations and accounts for only 1 percent of domestic sales. The minister only made a mockery of himself with his reckless tirade against the industry. Oh emphasized that the industry’s ratio of profitability remains at merely 3 percent and that 70 percent of the profit comes from exports. Knowledge Economy Minister Choi Joong-kyung recently said the 3 percent margin ratio was not that bad and had room to go lower. But it is not the place of the government in a free market system to talk about what the profit margin a company earns from sales should be.

If the government is really intent about lowering gasoline prices, it should axe the tax. The 50 percent tax is a blanket one that is levied equally on consumers whether they are rich or poor. Half of what a driver pays at the gas station goes straight to government coffers. The indirect tax is therefore unfair for low-income earners. The tax is a stealth one- levied on consumers without their knowledge - and therefore hasn’t faced much public opposition.

And there is no extra cost needed for hunting down tax dodgers. Refueling a car with 100,000 won worth of gasoline automatically enriches the government by 50,000 won. Such taxes produced 21.7 trillion won in 2009, taking up 19 percent of total national tax revenues. The tax is ridiculously high because it is easy to collect. Such a discriminatory tax for low-income earners should be cut. Public officials will raise the obvious question: “What about the loss of revenue?”

Well, that won’t be a problem if they do their work right - such as plugging leaks in tax revenues. The ministers know where unnecessary taxes are being squandered. Instead of beating up on the private sector, the government and public sector should first tighten their own belts.

*The writer is an editorial writer of the JoongAng Ilbo.

By Shim Shang-bok