National Assembly passes bill to expand fuel tax cuts to 55 percent

Economy

Published: 02 Aug. 2022, 18:11

National Assembly passes bill to expand fuel tax cuts to 55 percent

A gas station in Seoul on Tuesday. The National Assembly approved a bill that raised the maximum ceiling on the cut that the government can make on fuel tax to ease the burden on rising fuel prices. [YONHAP]

The latest bill passed by National Assembly on Tuesday will allow the government to cut fuel taxes up to 55 percent, up from the current limit of 37 percent, until the end of 2024.

Out of the 248 lawmakers present, 197 voted for the proposal and 16 against. Thirty-five lawmakers abstained from voting.

Expanding the range on the fuel tax cut was proposed by the Yoon Suk-yeol government to ease the burden of rising consumer prices.

With the bill's approval, the government will be able to cut prices by an additional 148 won per liter of gasoline.

Since last year, the government has been cutting taxes on gasoline and diesel as intentional oil prices surged.

The government lowered the fuel taxes 20 percent between last November and April this year. The cut was expanded to 30 percent between May and July.

The fuel tax cut was then raised to its legal ceiling of 37 percent as the international oil prices continued to remain above $100 per barrel amid the war in Ukraine.

After all the changes, the tax on a liter of gasoline has dropped from 820 won to 516 won, and for diesel 581 won to 360 won.

For LPG and butane gas, the tax has been lowered from 203 won to 130 won.

Due to the fuel tax cut, the government in the first five months of this year collected 2.6 trillion won ($2 billion) less in traffic tax compared to a year ago. This is a 34 percent drop year-on-year.

It is projected that traffic taxes will see an additional drop of 5 trillion won between July and December.

The government has been aggressively cutting fuel taxes in hopes of slowing down the rising consumer prices, which have risen more than 6 percent compared to a year ago for two straight months, the first in 24 years.

Fuel prices, which have been surging, have started to stabilize.

The average price of gasoline as of Tuesday has dropped to 1,883.19 won per liter. The last time a liter of gasoline was priced in the 1,800s was in March.

In June, gasoline prices for the first time peaked to 2,100 won per liter.

Some lawmakers have questioned whether the government’s fuel tax cut has any real benefits.

Yong Hye-in of the Basic Income Party on Tuesday argued that the fuel tax cut, instead of benefiting consumers, has only fattened up the oil companies.

“Despite the cut, only 40 percent of the reduction has been applied between November and June,” Yong said. “While 182 won in taxes have been cut from the gasoline price, the retailed gasoline only saw a drop of 69 won.

“According to studies by consumer groups, refineries have been raising the price on fuel products much more than that of the international oil price. In just the first half, the refiners have enjoyed 10 trillion won in operating profit,” Yong said.

Another bill that was approved by the lawmakers on Tuesday expands the tax exemption on workers' meal allowance, which is included in a person’s annual salary.

The meal allowance tax exemption starting next year will be expanded from 100,000 won per month to 200,000 won.

The meal allowance tax exemption had remained unchanged since 2003.

The tax cut is expected to reduce workers’ tax burden without affecting their total salary.

A person who is paid an annual salary of 40 million won will save 180,000 won in taxes, according to the government.

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