Will government extend fuel tax cuts?

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Expectations are growing that the government may extend fuel tax cuts, because of the acceleration of inflation in the range of 3 percent, far higher than the government's target of 2 percent, market watchers said Sunday. The finance ministry has until mid-December to decide.

Currently, the per-liter fuel tax on gasoline stands at 615 won ($0.47), down 205 won or 25 percent from the previous 820 won. The figure for diesel is 369 won, down 212 won or 37 percent from the previous 581 won.

The Ministry of Economy and Finance first introduced a fuel tax cut of 37 percent in July last year. It then raised the figure to 25 percent in January this year and has since left the rate unchanged.

Data from Opinet, a fuel price information platform operated by Korea National Oil Corp. showed gasoline prices averaged 1,684.05 won per liter last month and diesel prices came to 1,628.22 won.

If the tax cuts do not extend, the per-liter retail price of gasoline will rise to 1889.05 won, up 14.5 percent from last year.

However, the extension is not a foregone conclusion, since global oil prices are plunging.

The price of West Texas Intermediate crude oil for January next year came to $69.38 per barrel, Dec. 6 (local time), down 4.1 percent from the previous day. This was the first time since July 3 that the price has fallen below $70 per barrel.

Brent crude oil for January delivery stood at $74.30 per barrel on the London Intercontinental Exchange (ICE), down 3.8 percent from the previous session.

Also advancing the view against the extension is the declining national tax revenue total, as well as recommendations from international organizations such as the International Monetary Fund (IMF) and the OECD that the extension be terminated as scheduled.

The two organizations said a more income-targeted approach is preferred to a blanket policy from the long-term fiscal soundness perspective.