Government ponders extension on fuel tax breaks

The price of gasoline and diesel at a gas station in Seoul is seen in this photo taken Aug. 15, 2023 [YONHAP]

The government is considering extending the current tax cuts on fuel consumption through to December, sources said Tuesday, amid soaring energy costs and high inflation.

The cuts were set to expire this month, but according to the sources, the Ministry of Economy and Finance has been mulling extending the measure and plans to announce its decision later this week.

Currently, a 25 percent discount is provided for the consumption of gasoline and a 37 percent discount is given for the consumption of diesel and liquefied petroleum gas butane.

The finance ministry is said to be considering extending the tax cut for gasoline until the end of this year and gradually reducing tax benefits for diesel and liquefied petroleum gas butane.

The consideration comes amid soaring energy prices and high inflationary pressure.

As of Thursday, Dubai crude oil price shot up to $89 per barrel, up $10 from the average price of $77.20 last December, when the current tax cut was introduced.

Inflation also remains problematic, with core inflation, which excludes volatile food and energy prices, rising 3.3 percent on year in July. Overall consumer price growth slowed to a 25-month low of 2.3 percent in the month.

The Bank of Korea has forecast that inflation will be around the 3 percent level in August and remain above its official inflation target of around 2 percent for a considerable time.

But the loss of tax revenue may discourage the government from extending the fuel tax cuts as the government raised a total tax income of 178.5 trillion won ($133.4 billion) in the first half, down 39.7 trillion won compared with the corresponding figure for last year.

"We plan to decide whether to extend the measure following comprehensive consideration of international energy price trends, oil prices at domestic gas stations and the consumer price situation," a government official said.

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