Time to consider lowering oil taxes

Motorists need to dig deeper into their pockets as fuel prices have hit a record high on the back of soaring crude oil prices. As a result, they feel far more acute pain at the pumps than ever before.

What’s gloomier is that the prices are likely to go up further, driven by sanctions on Iran over the oil-producing state’s nuclear program and an anticipated turnaround of the world economy. Therefore, higher prices are inevitable not only in Korea but across the globe.

The question is how to cope with ever-more expensive fuel and avoid its corrosive effect on the economy and people’s lives. This is a tough challenge for Korea whose oil supply totally depends on imports.

Adding fuel to the fire is local refiners’ unfair way of doing business. They usually hike fuel prices immediately after crude oil prices rise. But they are slow to act when crude prices decline.

Last April, the government forced refiners to cut fuel prices by 100 won per liter, or 5 percent, accusing them of making undue profits by ripping off consumers. The cut was for three months. Refiners have begun to ramp up prices since the latter half of last year.

Average gasoline prices surged to 1,998.35 won (about $1.7) per liter on Saturday, breaking last year’s record of 1,993.17 won per liter. In Seoul, the prices have already surpassed the 2,000-won mark. Low-income earners are angry as they bear the brunt of runaway fuel prices.

Policymakers are finding it hard to contain the rising trend. They can no longer twist the arms of refiners to stem the increase. The last way is to lower oil taxes which account for half of gasoline and diesel prices. But the government is reluctant to do so, saying that a tax cut is possible when the price of Dubai crude oil climbs over $130 per barrel.

Officials argue that a tax reduction at this stage will have little effect of making a substantial price cut. They also claim that lower taxes may benefit the rich more than the poor. But consumer rights groups counter such a claim by saying that the government has become the largest beneficiary of higher fuel prices as it collects more tax.

Of course, slashing oil taxes mean less tax revenue. But the government should not turn a blind eye to consumers’ growing pain at the pumps. It’s time to take a flexible policy to help ease burdens for motorists through a tax cut.