(4th LD) S. Korea to cut fuel taxes by record 20 pct amid soaring oil prices

All News 14:45 October 26, 2021

(ATTN: RECASTS lead; ADDS more info in para 16)
By Joo Kyung-don and Kim Soo-yeon

SEOUL, Oct. 26 (Yonhap) -- South Korea said Tuesday it will temporarily cut fuel taxes by a record 20 percent in a bid to ease upward pressure on consumer inflation as oil prices have surged amid the global economic recovery.

The government will lower taxes on gasoline, diesel and liquefied petroleum gas (LPG) from Nov. 12 to April 30 next year, according to the finance ministry.

The fuel tax cut is forecast to reduce the government's tax revenue by 2.5 trillion won (US$2.1 billion) over the six months, according to the government's estimate. The move is expected to help drive down the inflation rate by 0.33 percentage point.

The ministry was considering cutting the taxes by 15 percent, but the ruling party and the government decided on a larger cut during their consultative meeting 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 as oil prices exceeded $80 per barrel. The tax benefits ended in August 2019 after being extended for several rounds.

In a related move, the government will cut import tariffs on liquid natural gas (LNG) to zero percent from the current 2 percent until the end of April next year.

"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 Oct. 24, 2021, shows gas prices 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 $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.

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.

Earlier in the month, the Bank of Korea hinted at an additional rate hike for November to curb inflation and household debt. The central bank froze the policy rate at 0.75 percent this month after raising it by a quarter percentage point in August.

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

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.

To curb inflation, the government plans to freeze natural gas bills for the next two months and will seek to leave public utility charges unchanged until year-end. It will also stably manage the supply of agriculture and fishery products.