South Korea drops plan to tax heated tobacco products

According to reports today, just two days after South Korea's finance minister hinted at a possible parliamentary hearing, the South Korean government abandoned its decision to potentially impose taxes on heated tobacco products on Wednesday.

The Ministry of Finance stated in a statement that the government is currently not considering raising tobacco taxes.

Previously, the minister's remarks were met with strong public opposition.

On Monday, during a meeting at the National Assembly, the ruling party advocated for imposing similar tax rates on non-combustible tobacco products, marking the first instance of a potential tax on heated non-combustible cigarettes.

People Power Party lawmaker Bae Jun-young stated that heated non-combustible cigarettes are as harmful as regular cigarettes, and smoking should be avoided for public health.

Bae added: I would like to ask the government about its stance on raising taxes on non-combustible cigarettes.

In response to Bae's inquiry, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho stated that heated non-combustible cigarettes should be treated like regular cigarettes.

Choo said: There are some differences in people's perceptions of the impact of heated non-combustible cigarettes. However, the Ministry of Health is now also discussing their harmful effects.

In South Korea, regular cigarettes are taxed at a higher rate because they are considered more harmful than non-combustible cigarettes.

A total tax of 3,323 won (2.52 USD) is levied on each pack of cigarettes, which includes 1,007 won in tobacco consumption tax, 443 won in education tax, 594 won in consumption tax, 409 won in value-added tax, 841 won in health promotion fees, 24.4 won in waste fees, and 5 won to support tobacco farmers.

On the other hand, non-combustible cigarettes are taxed at 3,004 won, accounting for 90.4% of the tax levied on regular tobacco products.

The retail price for both regular tobacco products and non-combustible cigarettes is approximately 4,500 won per pack.

The government's latest move has drawn public criticism as they attempt to increase revenue through tax hikes amid declining income.

Data from the Ministry of Finance shows that tax revenue for January and February this year was 54.2 trillion won, a decrease of 15.7 trillion won compared to the same two months last year.

In recent years, tax revenue from tobacco products has also declined.

In 2022, the number of tobacco products sold in South Korea reached 3.63 billion packs, a 1.1% increase from 3.59 billion packs in 2020. However, the total tax revenue from all tobacco products dropped from 12 trillion won in 2020 to 11.8 trillion won in 2022.

This is mainly due to a decrease in sales of regular tobacco products, while sales of non-combustible cigarettes increased and replaced traditional cigarettes at higher tax rates.

In 2022, a total of 540 million packs of non-combustible cigarettes were sold, up from 380 million packs in 2020. However, sales of regular cigarette packs reached 3.09 billion packs in 2022, down from 3.2 billion packs in 2020.

On Wednesday, a local smokers' association expressed concern that the tax increase on non-combustible cigarettes would lead to a further increase in overall tobacco taxes.

The association also criticized the ruling party for trying not to offend businesses while giving little consideration to ordinary people.

The association stated in a statement: It is absurd to lower corporate taxes by 1% on one hand while raising (tobacco taxes) on the other.

In December last year, the National Assembly agreed to lower corporate taxes by one percentage point.

An industry insider, who wished to remain anonymous, stated: Under strong opposition from smokers, the government seems to have changed its stance.

Industry observers noted that the government is unlikely to raise taxes on popular cigarette products, especially ahead of the elections in April next year.