There are rumors of lowering the fuel tax everywhere. On the 19th, Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho announced, “The range of fuel tax cuts (currently 30%) will be expanded from July to the end of the year to 37%, the maximum allowed by law.” And on the 21st, three days later, Kim Seong-hwan, chairman of the policy committee of the opposition Democratic Party of Korea, said, “At 37 percent (fuel tax cut), you pee on your feet.”
However, even if the fuel tax is lowered, it is difficult for consumers to feel it. Oil prices are rising so rapidly. According to Korea National Oil Corporation Office, the average retail price of gasoline nationwide on the 22nd was 2119.53 won per liter and 2132.27 won for diesel. Compared to the end of April of this year, just before the government expanded the fuel tax cut from 20% to 30%, it rather increased by 200 won per liter.
The effect of the oil tax cut has long since been diluted as international oil prices have risen sharply. Expanding the fuel tax cut to 37% or 50% will not change much. Unless the rise in international oil prices due to the Russian-Ukraine war and supply chain disruptions does not subside, it will be difficult to achieve the desired effect. This is why critics are being criticized for being condescending to the competition between the government and the National Assembly to cut fuel taxes, which is flowing in a ‘ask and double’ style.
It’s not the first time. Even in 2008, when the oil price crisis hit, there was a similar controversy. At that time, the ruling Grand National Party (currently the Power of the People) announced that it would consider amendments to the tax law to expand the fuel tax flexible tax rate (the maximum limit that the government can flexibly adjust the tax rate) from 30% to 50%. Of course, it was all luck and nothing happened.
The behavior of the government and the National Assembly has not changed from 10 years ago. Only when the oil price soars like now is the tax is lowered and only contemptuous. They are ignoring tax reform while collecting huge amounts of money through fuel tax.
Fuel tax is an abbreviation of the tax levied on fuel. It consists of transportation/energy/environmental tax, education tax (15% of transportation tax), driving tax (26% of transportation tax), and value-added tax (10%). Individual consumption tax and sales levy may be added depending on the type of oil.
The transportation tax was a 10-year temporary tax created in 1994 for the purpose of expanding transportation facilities such as roads and railroads. However, rather than being abolished, it has only grown in size since then. Transportation tax is a tax (specific tax) that is levied according to the quantity, not the amount. Since a certain amount is levied per liter, tax revenue automatically increases when oil and gas consumption increases, regardless of whether oil prices fall or not.
According to the National Tax Annual Report, traffic tax revenues last year amounted to 16.5984 trillion won. For the first time ever, it surpassed the 16 trillion won mark. As for a single tax, transportation tax revenue is the second only after income tax, corporate tax, and value-added tax, which are the three major tax categories. If you take into account the education tax, driving tax, value-added tax, individual consumption tax, and sales charge that automatically follow the transportation tax, oil-related tax revenues amount to tens of trillions of won.
This is also the reason why the government is passive about the overall fuel tax reform. There are calculations such as public opposition in the process of energy tax reform and concerns about a decrease in tax revenue.
The Moon Jae-in government also insisted on reforming the energy tax, such as the introduction of a carbon tax, immediately after its inauguration, but ended his term without being able to pursue it properly. A new government has been launched, but nothing has changed. The temporary cut in fuel tax only pays tribute, but remains silent on the energy tax reform. The deformed structure of collecting nominal fuel taxes such as transportation and education remains the same. It is not the time to worry about the lack of education budget due to the low birth rate and the lack of road and rail infrastructure. Under the current system, even if the fuel tax is cut, there is a problem in that the benefits are concentrated on the wealthy who consume a lot of oil and gas.
Choi Won-seok, a professor at the Department of Taxation at the University of Seoul, said, “As the price of oil rises and the burden on the public increases, it is necessary to stop paying taxes that have achieved their purpose, such as the transportation tax, and to completely reorganize the relevant taxation system in line with the new energy environment such as renewable energy and climate change.” said
Hyunsook Cho ([email protected])