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(2nd LD) S. Korea to cut fuel taxes by record 20 pct amid soaring oil prices

All News 10:32 October 26, 2021

(ATTN: UPDATES throughout with details; RECASTS headline; ADDS photo)
By Joo Kyung-don and Kim Soo-yeon

SEOUL, Oct. 26 (Yonhap) -- South Korea plans to temporarily cut fuel taxes by a record 20 percent in a bid to ease upward pressure on inflation amid surging oil prices, the chief policy maker of the ruling party said Tuesday.

The government will lower taxes on gasoline, diesel and liquefied petroleum gas (LPG) starting Nov. 12 for six months, Rep. Park Wan-joo said after the ruling Democratic Party (DP)'s consultation with the government on inflation.

The measures, to be in effect until April 30, are expected to reduce people's tax payments by 2.5 trillion won (US$2.1 billion).

The government was considering cutting the taxes by 15 percent, but after consultation, the DP and the government decided on a larger cut to help ease the burden caused by high energy costs.

The country last cut fuel taxes by 15 percent in November 2018 for six months, and the tax benefits ended in August 2019 after being extended for several rounds.

In a related plan, the government will cut import tariffs on liquid natural gas (LNG) to zero percent from the current 2 percent.

"The government will mobilize all available policy tools to stabilize consumer prices as the annual growth of inflation is forecast to top 2 percent this year," Finance Minister Hong Nam-ki told a government meeting.

This photo taken on Oct. 24, 2021, shows a gas price sign at a filling station in Seoul. (Yonhap)

The fuel tax cut comes as oil prices surged to a near three-year high amid the global economic recovery from the pandemic.

Prices of Dubai crude, South Korea's benchmark, hit US$83.89 per barrel on Oct. 18, up from an average of $72.63 in September.

The average gas prices reached a seven-year high of 1,732.40 won per liter in the third week of October, up 45.2 won from the previous week, according to data compiled by the state-run Korea National Oil Corp.

South Korea depends on imports for its energy needs. Taxes account for around 40 percent of domestic gasoline prices.

The Korean currency's weakness against the U.S. dollar also boosted import bills of oil products. The won hits a 14-month low of 1,198.8 per the dollar on Oct. 12, and has fallen nearly 1 percent since September.

High oil prices have put upward pressure on consumer prices.

South Korea's consumer prices rose 2.5 percent on-year in September, compared with a 2.6 percent gain in August, according to government data.

The consumer prices grew more than 2 percent -- the central bank's inflation target -- for the sixth straight month in September due largely to high prices of farm and oil products.

Inflation growth is likely to exceed 3 percent in October due to last year's low base. The government provided one-off subsidies for mobile phone bills a year earlier.

Hong said the country will make efforts to stabilize the annual growth of inflation to the low-2 percent range this year.

It plans to freeze public utility charges and stably manage the supply of agriculture and fishery products.

Earlier this month, BOK Gov. Lee Ju-yeol said the 2021 growth rate of consumer prices is likely to exceed the central bank's forecast of 2.1 percent.

Finance Minister Hong Nam-ki (R) speaks at a government-ruling party meeting at the National Assembly in Seoul to discuss price stabilization measures. (Pool photo)

kdon@yna.co.kr

sooyeon@yna.co.kr
(END)

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