However, a closer look at the data suggests that the surge in popularity of heat-not-burn (HNB) e-cigarettes, and the growing number of smokers switching over from traditional cigarettes is the real reason why the regional taxman’s haul is a few percentage points off compared to last year. (Image: Korea Bizwire)
CHEONGJU, Jan. 5 (Korea Bizwire) — What on the surface appears to be good news actually has municipal governments worried. Last year, tobacco consumption tax revenues declined considerably, which may be interpreted by some as a sign of a healthier public who, deterred by a government-ordered price hike of around 80 percent, are willing to embrace a non-smoker lifestyle.
However, a closer look at the data suggests that the surge in popularity of heat-not-burn (HNB) e-cigarettes, and the growing number of smokers switching over from traditional cigarettes is the real reason why the regional taxman’s haul is a few percentage points off compared to last year.
According to North Chungcheong Province, tobacco consumption taxes gathered in eleven administrative regions last year totaled 125.1 billion won, 5 billion won or 3.9 percent less than the 130.2 billion won brought in the previous year.
Tax revenue from cigarette sales did not drop even in 2015, when the price of cigarettes leaped from 2,500 won to 4,500 won per pack.
In the province alone, sales fell from 152.6 billion packs to 133.8 billion from 2014 to 2015. Despite shrinking in volume by 32.3 percent, less commercial activity had no negative impact on tobacco consumption tax; on the contrary, tax revenue rose by 6.4 percent, from 97.9 billion won to 141 billion won.
To make sense of the tax revenue fluctuations, local governments have fingered Phillip Morris Korea’s IQOS, BAT Korea’s Glo and KT&G’s Lil — all released last year — as the true culprits.
To make sense of the tax revenue fluctuations, local governments have fingered Phillip Morris Korea’s IQOS, BAT Korea’s Glo and KT&G’s Lil — all released last year — as the true culprits. (Image: Yonhap)
Tobacco consumption taxes slapped on HNB tobacco sticks are lower than those imposed on traditional cigarettes. Last December 15, the government boosted the former’s tax levy from 528 won per pack of tobacco sticks to 897 won, a significant jump that still falls short of the 1,007 won levied on cigarettes.
The product preferences of smokers may end up hurting municipal residents’ quality of life; one local government official interviewed for this story revealed that regional offices would have to pull the plug on various programs should tobacco consumption tax revenues retreat by anywhere from 100 million to 200 million won to 1 billion to 2 billion won depending on the area.
This individual added that the tax on HNB tobacco sticks should be raised to align with traditional cigarettes.
Tobacco consumption taxes typically account for 10 to 25 percent of municipal government tax revenues.
Lina Jang (linajang@koreabizwire.com)
