By Yoon Ja-young
Staff Reporter
Concerns over international oil price hikes are growing, as the country is heavily dependent on imported oil. But while voices are getting louder calling for taxes on oil to be cut to ease the oil price shock on the economy, the government is still negative.
A $100 per barrel price has become a probable scenario as crude oil for November delivery soared to $90.02 a barrel on the New York Mercantile Exchange Thursday, breaking $90 for the first time. The shooting oil price rattled the stock market, pulling down the Dow Jones Industrial Average by 2.64 percent, the biggest plunge since the subprime mortgage shock on Aug. 9.
The Korean economy could be shaken further as it is the seventh largest oil consumer in the world, depending for 97 percent of its energy needs on imports.
Currently, tax accounts for 57.7 percent of gasoline prices, which is much higher than 40.9 percent in Japan and 12.9 percent in the United States but lower than over 60 percent in some European countries.
The government collected 23.5 trillion won taxes on oil last year, up 31.9 percent from 2002. Oil-related taxes during the last five years amounted to 103.8 trillion won.
Despite the pressure to cut taxes, the government has said that solutions should be sought on the demand side by curbing oil consumption instead of cutting taxes. ``With carbon emissions emerging as a global problem, it isn't right to lower oil taxes,'' said Finance and Economy Minister Kwon O-kyu at the parliamentary inspection last week. The minister said that a tax cut would be likely offset by growing margins at gas stations, and fears that it would only eat into tax resources. He said the ratio of oil-related taxes to all taxes has fallen to 16 percent from 18 percent.
He explained that no country copes with the oil price hikes with tax cuts, but added that the ministry would consider it if the ruling and opposing parties reach an accord.
However, oil-related taxes are likely to be cut in the next government if the oil price issue continues due to campaign pledges by the presidential candidates. Lee Myung-bak, the leading candidate from the main opposition Grand National Party, pledged to cut oil taxes by 10 percent, while Chung Dong-young, the candidate from the pro-government United New Democratic Party, plans to cut oil-taxes by 20 percent if he becomes president.