Tax cut on fuel extended until August

People walk past a sign board showing oil prices in Seoul on Tuesday. The Ministry of Economy and Finance announced Tuesday it would extend tax cuts on fuel for four months through August. [NEWS1]

Korea extended a tax cut on fuel for another four months as oil prices remain uncertain and inflation stays high.

The Ministry of Economy and Finance announced Tuesday it will extend the 25 percent tax cut on gasoline and 37 percent tax reduction on diesel through Aug. 31.

The ministry said the public burden should be continuously eased, considering the recent rise in oil prices following the announcement by OPEC+ earlier this month that it will cut oil output from May.

The oil producers said they will cut oil supply by more than a million barrels a day.

“The latest measure prioritized reducing people’s economic burden despite challenging financial conditions,” said the ministry in a statement.

The average gasoline price at gas stations nationwide was 1,656.90 won ($1.26) per liter Monday, up from 1,598.36 won a month earlier, according to Opinet, the Korea National Oil Corporation’s oil price management system.

Diesel cost 1,545.81 won Tuesday, up from 1,542.55 won a month earlier.

The government expects the tax cut extension to help people save around 25,000 won per vehicle a month.

The government first cut its tax on oil in November 2021 to reduce public burdens from the pandemic-stricken economy, extending it since. The last tax cut finishes at the end of this month.

The decision to extend the cut comes with inflation still high.

Inflation was 4.2 percent in March, the lowest in a year, and down from 4.8 percent in February. Though inflation has been declining since hitting a 24-year high of 6.3 percent last July, it is projected to stay above the target 2 percent.

The OECD forecast Korea’s inflation to reach 3.6 percent this year.

The finance minister hinted at the extension during remarks on Monday.

Finance Minister Choo Kyung-ho said in a meeting that the government will “positively review ways to extend the tax cut on oil.”

Tuesday's decision came despite decelerating tax revenue. Through February this year, tax revenue was down by 15.7 trillion won from a year earlier.

Without changes, annual tax revenue is projected to reach 380.2 trillion won, lower than the ministry's initial estimate of 400.5 trillion won.

Tax revenue from energy and transportation was down 5.5 trillion won last year.

“Less tax revenue is being collected than initially expected, despite having made conservative forecasts, because the property and stock market withered rapidly,” Choo said Monday. He added the level of tax revenue will not be favorable throughout the year.

BY JIN MIN-JI [jin.minji@joongang.co.kr]