Although global oil prices have plunged to record-lows, many drivers in South Korea say they have not benefited from the corresponding falls in their daily fuel costs.

An insignificant decline in local gasoline prices in an era of persistently low crude prices has led to growing public calls for the government to alter its taxation system.

The current scale and method of levying taxes on oil products prevents local retail fuel prices from falling in line with major drops in crude prices.


Taxes currently account for a majority of the retail price of various oil products in Korea -- around 62 percent of the local market price of gasoline.

The state levies a fixed tax of 745.89 won per liter of fuel. This includes an energy and environment tax, an education tax as well as a driving tax -- which remain unaffected by fluctuations in crude prices.

When accounting for additional commodity taxes, a total of 800 to 900 won in taxes must be paid per liter of gasoline, regardless of downward changes in crude prices.

As of December 2015, the average retail price of gasoline stood at 1,411 won, of which crude import prices took up 238 won (17 percent) and state taxes 877 won (62 percent), according to a recent report by the National Assembly Budget Office.

Taxes on gasoline took up 762 won (54 percent) while margins taken by oil refiners and gas stations stood at 281 won (17 percent).

“For every 10 percent drop in global oil prices, local gas prices drop by a mere 1.9 percent,” the report found.

While Dubai crude prices stand in the $30 range today, roughly half the price seen a year earlier, local gas prices have dropped by about just 15 percent, according to the Korea National Oil Corp.’s Opinet.

Opponents of the current fuel tax system assert that the government should significantly lower its tax rates or implement a new taxation system which reflects ongoing shifts in crude oil prices.

“A system in which fuel taxes take up more than double the price of importing crude is certainly abnormal,” said Oh Jung-kun, professor of finance and information technology at Konkuk University during a discussion hosted by the Citizens United for Better Society last week.

“Under the current system, even if crude prices were to continually fall, it is difficult for the retail prices of gasoline in Korea to fall below the 1,300-won mark,” he said, noting the government, rather than the public, is the biggest beneficiary.

“In the long run, lowering fuel taxes will decrease consumers’ burden on fuel spending and raise their purchasing power, helping revive the local economy.”

Meanwhile, the Korean government remains adamant about retaining its fuel taxes at current levels.

“Korea’s oil tax may be burdensome, but it is not overly high compared to international standards (including those of other OECD countries),” Minister of Strategy and Finance Yoo Il-ho told the National Assembly last week.

The fixed taxation system also protects consumers from rapid increases in fuel tax when global crude prices surge, Yoo said.

As for potentially offering citizens tax refunds on gasoline purchases, as was the case when crude prices jumped to the $140 range in 2008, Yoo said such a move at this point would be untimely.

“When crude prices are low, offering tax refunds would have little effect on revitalizing consumer spending and rather negatively impact the government’s tax income.”

By Sohn Ji-young (jys@heraldcorp.com)