Import duties on crude likely to be slashed

By Kim Tae-gyu

The Korean government is seeking to scrap the 3 percent import duty on crude oil in order to reduce burdens on motorists, who will face an increase in gasoline and diesel prices late next week.

Minister of Knowledge Economy Choi Joong-kyung made the remarks Thursday in a press conference held at the ministry before he visits African countries together with President Lee Myung-bak this weekend.

``The overall taxation system on petroleum products will be reviewed only when the crude oil price hits $130 per barrel. We have confirmed this several times,’’ said Choi who took charge of the ministry earlier this year.

``Instead, we could do away with the tariff on crude oil, which amounts to 3 percent. That would be possible in consultation with related ministries considering gasoline and diesel prices are about to rise.’’

The Ministry of Knowledge Economy (MKE) pressed local refiners hard, leading them to trim gasoline and diesel prices by 100 won per liter in early April. The temporary pricing policy will expire on July 6.

This prodded industry watchers to worry that the end of the temporary discounts will overly weigh on domestic households, which are already suffering from inflation amounting to more than 4 percent this year.

``Once we eliminate the 3 percent tariff, the government will see its tax revenue go down by around 110 billion won every month. Hence, related government agencies such as the Ministry of Strategy and Finance (MOSF) are concered,’’ Choi said.

``However, tax revenue has been rising substantially as of late thanks to high oil prices. Subsequently, I think that we could abolish the 3 percent tariff.’’ He did not specify how long the tariff would be jettisoned if such a step is taken.

Crude oil prices climbed to a record high of around $145 per barrel in the summer of 2008 but they plunged to about $40 in early 2009 at the peak of the global economic crisis. But they have been on the increase since then to above $100 and now moves in the $110 range.

Asked about electricity charges, the 54-year-old life-time bureaucrat insinuated that the rates would not increase by more than 4 percent this year as he said the uptick might have to be within in the government’s 2011 inflation target of 4 percent.

The MKE has strived to link electricity rates to the values of raw materials such as coal and crude oil, which would cause them to go up because raw material prices have been rising in recent years.

But Choi hinted that the ceiling on the increase would be 4 percent.