South Korea is extending cuts to fuel taxes for another two months, doubling down on one of its most frequently used fiscal tools to shield consumers from cost-of-living pressures, even as it begins to roll back other energy-related tax breaks in a sign of calibrated policy management.
The government said Monday that reductions of 7% for gasoline and 10% for diesel and liquefied petroleum gas (LPG), scheduled to expire this month, will now remain in effect through the end of February. The move marks the 19th extension of the fuel tax relief since it was first introduced in November 2021, effectively transforming what began as a temporary cushion into a semi-permanent feature of the country’s inflation playbook.
The decision reflects ongoing economic crosscurrents: global oil markets remain volatile, and a weak Korean won has increased the local currency cost of imported energy. South Korea, which imports nearly all of its fuel, is particularly sensitive to exchange-rate fluctuations, making pump prices a politically salient issue.
For consumers, the savings are tangible, if modest. Over the next two months, the cuts are expected to keep gasoline prices about $1.5 per gallon lower than the full-tax baseline, diesel about $1.9 lower, and LPG butane about $0.4 lower.
The tax relief is being extended beyond transportation fuels. The government also prolonged a reduction in the individual consumption tax on passenger vehicle purchases through June 30. The rate will stay at 3.5%, down from the standard 5%, with a direct tax benefit capped at $675 per vehicle. Combined with associated cuts to education and value-added taxes, the total support can reach up to $970 per car.
However, in a signal that authorities are attempting to narrow the scope of broad-based support, temporary tax cuts on fuels used for electricity generation will expire as scheduled at month’s end. Officials cited relatively stable prices for power generation fuels. As a result, the tax on liquefied natural gas used in power plants will revert to about $0.09 per pound from a temporarily reduced rate of $0.05, while the levy on thermal coal will rise to about $0.18 per pound from $0.14.
The mix of extensions and expirations underscores the fine line South Korea is walking in using fiscal levers to manage inflation. Support is being maintained where consumer pain is most direct—at the gasoline pump and in auto showrooms—while being withdrawn for industrial sectors where cost pressures have eased.
“The sustained use of fuel tax cuts shows how difficult it has been to exit emergency measures,” said Kim Hyun-ju, an economist at KB Securities in Seoul. “The government is trying to avoid adding to inflation while also preventing the relief from becoming a permanent drag on fiscal health.”
The pattern mirrors challenges faced by other advanced economies where “temporary” cost-of-living subsidies have proven difficult to retract. With the won still vulnerable and energy prices unpredictable, South Korea’s extended tax cuts highlight the prolonged nature of today’s inflation battles.
