Fuel tax cuts extended through July as price caps stay frozen

(Yonhap)

South Korea will extend fuel tax cuts through the end of July and freeze state-controlled fuel price caps for a fourth consecutive round, as the government seeks to contain inflationary pressure stemming from rising oil prices amid tensions in the Middle East.

Koo Yun-cheol, deputy prime minister and minister of the Ministry of Finance and Economy, announced the measures Thursday during a ministerial task force meeting on consumer prices and external economic affairs held at the Government Complex Seoul.

The current fuel tax reductions, originally scheduled to expire at the end of May, will remain in place for an additional two months. The tax cut rates will also stay unchanged.

The government expanded the reductions in March, lowering gasoline fuel taxes by 15 percent from 7 percent previously, while diesel tax cuts were widened to 25 percent from 10 percent. As a result, fuel taxes will remain at 698 won ($0.47) per liter for gasoline and 436 won per liter for diesel.

Officials said the extension is intended to ease household fuel costs while the government continues operating a maximum price system for petroleum products. Diesel, which is widely used in logistics and industry, continues to receive a steeper reduction rate.

Fuel taxes in South Korea are levied when refiners ship petroleum products from factories, meaning lower taxes are expected to reduce retail prices.

“Under the current guidelines, fuel prices are calculated by reflecting fuel tax reductions,” said Kim Wan-su, director of environmental and energy taxation at the Ministry of Finance and Economy. “We believe the tax cuts can be sufficiently passed on to consumers.”

The government also suggested that further extensions remain possible if inflationary pressure persists.

Officials expect consumer inflation in May to exceed April’s 2.6 percent pace, partly because oil prices climbed above 2,000 won per liter this month and due to base effects from relatively low prices a year earlier.

Separately, the Ministry of Trade, Industry and Resources said Thursday that the sixth round of maximum petroleum prices, effective from midnight Friday (22nd), will remain unchanged.

Under the latest cap system, gasoline prices will stay at 1,934 won per liter, diesel at 1,923 won and kerosene at 1,530 won, matching levels set during the previous three rounds.

The government also said it would step up monitoring against hoarding and other market practices that could negatively affect consumer prices.