[THE INVESTOR] The Korean government and parliament appears to be under fire from consumers and related industries for leaning toward raising more taxes from heating-type cigarettes in a move backpedaling on previous policies.
After deciding to keep taxes on the new type of tobacco sticks lower than or at least on par with those of conventional combustible cigarettes, the National Assembly is now poised to slap individual consumption taxes of 594 won (US$0.52) on 20 cigarettes. This would raise prices to almost 5,000 per pack, which is higher than the 4,500 for existing cigarettes.
A bill outlining the higher taxes passed the Finance Ministry’s tax subcommittee on Aug. 22. But as lawmakers were unable to reach a decision last week, floor discussion has been pushed back to Aug. 28.
Currently, tobacco sticks made for heating by Philip Morris cost 4,300 won per pack. Those sold by British American Tobacco cost 4,300 won. Instead of burning, these sticks have to be heated to be smoked. They contain nicotine, but manufacturers claim harmful substances have been cut down by 90 percent. Korean health authorities are reviewing the products to see if these assertions can be backed up.
The Moon Jae-in administration had said there would be no further increases to cigarette-related taxes, and also supported the logic behind containing the taxes on heat-type cigarettes. The previous Park Geun-hye administration had faced much flak for nearly doubling cigarette prices. The move led to 9 trillion won of additional revenues, and is expected to earn the Moon government more than 22 trillion won over the next five years.
The heftier taxes, however, have failed to reduce smoking. During the first quarter of 2017, cigarette sales fell 19 percent on-year, down from the expected 34 percent decline.
Heating type cigarettes were introduced this summer in Korea, and products have been flying off the shelves. In Japan, they enjoy a market share of almost 10 percent.
“The government could be seen as pouncing on hot-selling products to milk them for taxes,” said one industry source, declining to be identified.
The government will need an amount of funds as yet not estimated to fulfill all the welfare pledges it has promised. Raising health care support for the elderly, creating more public sector jobs and providing bigger monthly child care are only some of the pledges.
By Song Seung-hyun (firstname.lastname@example.org)