Seoul to announce fuel tax cut next week to counter price hikes

SEOUL, Oct. 19 (Yonhap) -- South Korea's government will announce cuts in fuel tax rates to help ease cost pressures felt by small businesses and ordinary people, the country's top economic policymaker said Friday.

"We are in discussion with the presidential office ... are considering announcing the step next week," Finance Minister Kim Dong-yeon said during a parliamentary interpellation session.

The minister said oil prices are hovering above the US$80 per barrel mark, and fuel prices have recently risen sharply.

"The tax cut may help boost domestic demand as well," he said.

Sources said earlier that a 10 percent reduction in taxes levied on various refined fuel products, such as gasoline, diesel, liquefied petroleum gas (LPG) and butane, are under review.

The government, meanwhile, collects some 26 trillion won (US$23 billion) in fuel taxes every year, with a 10 percent cut translating into 2.6 trillion won less in revenue for the state.

The government's temporary plan to lower the fuel tax by 10 percent will likely pull down consumer prices by 0.2 percentage point, the Bank of Korea (BOK) estimated earlier.

The minister also said the country's real estate tax will rise gradually, and Seoul will take additional actions to help stabilize housing prices.

"The government will take swift and firm actions, should the housing market show signs of instability," he stressed.

Last month, South Korea's government said it would levy higher taxes than originally planned as it strives to rein in soaring property prices.

Over the past year, the Moon Jae-in government has unveiled a series of measures to curb housing prices that have had little impact on the market.

Alarmed by the fastest housing price gains in a decade, Seoul said it would further raise the tax burden on owners of high-priced houses and multiple homes, and seek to raise the taxable rate of a property, which is now 80 percent of the government-set value. The rate should climb to 100 percent by 2022, compared with the originally proposed 90 percent by 2020.

Despite a series of measures to tame the market, apartment prices in the affluent Gangnam district and some other neighborhoods have jumped on hopes of reconstruction projects moving forward and ample liquidity circulating in the economy.

The BOK has engaged in eight rounds of rate cuts since 2012, which allowed considerable liquidity to enter the market. This easy access to money has been cited for fueling the spike in home prices and household debt.

sam@yna.co.kr
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