In accordance with the International Convention for the Prevention of Pollution from Ships (MARPOL) by the International Maritime Organization (IMO), regulations have recently been tightened for the sulfur content of ships' fuel oil. Under the Special Act on Air Quality Improvement in Harbor Regions, etc., and the Enforcement Decree of the Prevention of Marine Pollution Act, the sulfur content of coastal cargo ships' fuel oil in Korea must be no more than 0.5% starting from 2021, which is expected to rapidly increase fuel costs.

As ocean-going ships, passenger ships, and fishing vessels can receive tax exemptions for all fuel they use, stop using fuel oil and converting to diesel will not have much impact on such ships. Meanwhile, business owners must bear all the cost for coastal cargo ships resulting from changing regulations since there is no tax break for them, which will lead to a rise in distribution cost, worsen business for ship operators, and increase shipping prices.

Although small and medium coastal cargo ships, which is an essential means of transport to ship daily necessities to islands, have used diesel (one seventh of fuel oil’s sulfur content) and paid taxes 27 times more than fuel oil, they have tolerated these taxes to improve residential conditions in islands and support distribution between islands and mainland Korea. However, business challenges are worsening due to tighter regulations for the body of small oil tankers, stronger air pollution regulations, and travel restrictions caused by COVID-19. Accordingly, this Act aims to include small ships which have used diesel previously into tax break recipients to support business owners making a living despite severe business challenges.

Hence, this Act exempts taxes imposed on diesel used by coastal cargo ships to rectify unfairness for small coastal cargo ship operators, which have borne distribution costs between islands and mainland Korea, and promote sound growth in the industry (Article 111-5 newly inserted).

Article 111-5