South Korea to Cut Taxes to Support LNG-fired Power Generation

South Korea is all-poised to cut taxes on liquefied natural gas (LNG) to the tune of 74% and increase taxes on thermal coal for power generation by nearly 27% in 2019. The cuts are an effort to cut the country’s heavy dependence on coal for power production and gradually shift towards gas.

The country’s finance ministry reiterated that in the context of the revision to the tax code, the government was planning to lower taxes on LNG, which was inclusive of consumption and import tax, from Won 91.4/kg to Won 23 ($0.02)/kg. Furthermore, the taxes on thermal coal would increase from Won 36/kg to Won 46/kg. The tax was increased in April from Won 30/kg to Won 36/kg. And, the ministry stated that if the new tax code would get an approval from the National Assembly, then it would get into effect from April 1, 2019.

In this context, a ministry official stated that the tax revisions on LNG and thermal coal were designed to reflect the environmental costs of using the fossil fuels for power production in an effort to reduce air pollution. The official added that the new tax rates would support LNG’s price competitiveness against coal in power production.

According to sources, coal-fired power plants account for nearly 40% of the country’s electricity supply, while LNG accounts for nearly 20%. Furthermore, nuclear reactors provide around 30%, with oil and renewable sources inclusive of hydropower, wind, solar which account for around 10%.

Meanwhile, the revised tax code is said to be in line with President Moon Jae-In’s vision of energy transition from coal and nuclear to LNG and renewables. Moreover, the Moon government has scrapped plans for around nine new coal-fired power plants having a capacity of 8.4 GW whilst reiterating to ban any additional coal power plants.

The country has already closed five aging coal-fired power plants from March to June, which has supported LNG consumption for power generation. And, according to sources, the LNG sales by state-run Korea Gas Corp. for power generation increased 18.8% from 16.62 million mt in 2017 to 19.74 million mt in just the first half of 2018, which reiterates the gradual shift towards gas.

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