South Korea extends tax cuts for LNG and coal to help address electricity, gas rates woes

South Korea has decided to extend the consumption tax cut on LNG and coal used for electricity production by an additional six months through the end of June to help ease the financial troubles of power utilities, the Ministry of Economy and Finance said Nov. 28.

The ministry will also extend the import tariffs cut for LNG by an additional three months until the end of March next year, under which imports tariffs on LNG would remain at zero.

The government has lowered consumption taxes on LNG and coal used for electricity generation by 15% since August 2022 to help tackle inflation sparked by surging fuel costs.

Under the measure, the consumption tax on LNG has been reduced to Won 10.2/kg ($0.01/kg), from Won 12/kg, previously.

Consumption taxes on thermal coal have been lowered to Won 36.5-41.6/kg, depending on calorific values, compared with Won 43-49/kg, previously, according to the ministry’s statement.

The government has also abolished import tariffs on LNG since March 2022 to help stabilize domestic prices amid the Ukraine-Russia military tensions, which have forced South Korea to sharply reduce purchases of Russian LNG.

Until February 2022, the country levied a 3% tariff on LNG imported during the peak winter season from October to March and 2% during the rest of the year. It temporarily abolished the tariff in March 2022, and with today’s decision, the abolition which was supposed to end by the end of December will remain effect until end-March next year.

The tax cut and tariff abolition were supposed to terminate at the end of December, but the government has decided to extend the measure until the end of June and March next year, respectively, to consider financial conditions for state-run energy companies such as Korea Electric Power Corp. and Korea Gas Corp.

The extended tax benefits for consumption of LNG and coal as well as imports of LNG are expected to help the government address calls by utilities to raise electricity rates and city gas prices.

On Oct. 24, the government raised electricity rates for industrial use by 9.7% on average but froze those for households “to take inflation and the livelihoods of the people into consideration,” according to the Ministry of Trade, Industry and Energy.

It marked the first electricity rate hike in a year since November when the country raised rates for big companies by average Won 10.6/kWh, while freezing electricity prices for households and small- and medium-sized firms.

The government also raised domestic natural gas prices for households and commercial users by an average of 6.8% in August to address Kogas’ snowballing losses.

It marked the first rise in city gas rates in 15 months since May 2023 when the government raised the price by 5.3%.
Source: Platts