SEJONG, Sept. 20 (Korea Bizwire) – Cigarette taxes have long been used to discourage citizens from smoking and bolster government coffers. Either way, they’re usually a win-win strategy for both parties.
The Korean government raised its cigarette taxes in 2015 by almost doubling the price of cigarettes from 2,500 or 2,700 won ($2.23) per pack to 4,500 won for most packs.
The policy, however, has since been criticized for not being as effective as hoped in discouraging tobacco consumption, but instead allowing the government to reap a windfall in taxes from cigarette smokers.
In numbers, tax revenue from cigarettes increased significantly from 6.99 trillion won in 2014 to over 10.5 trillion in 2015, with an anticipated increase to 13.17 trillion won this year. Only 147.5 billion won were spent in 2015 on government anti-smoking campaigns and related ventures.
The percentage of cigarette taxes as a share of total tax revenues also increased from 2.6 percent in 2014 to 3.8 percent last year, and is expected to rise to as much as 4.58 percent by the end of 2016.
Meanwhile, although the smoking rate for male adults has made a modest drop to 39.3 percent from 43.1 percent, cigarette production, which saw a 29.6 percent decline in 2015, is slowly recovering. Cumulative cigarette sales from January to August this year also increased by 15.7 percent (at 2.43 billion packs) compared to the same period last year.
With the latest figures at hand, the Ministry of Strategy and Finance issued a press release Monday claiming that this year’s increase in cigarette sales and output is the result of a base effect, in which cigarette sales plummeted in early 2015 when the tax increase went into effect.
According to the ministry, quarterly sales of cigarettes prove this true. Although this year’s Q1 sales saw an increase of 42.8 percent compared to Q1 2015, the percentage increase dropped significantly in Q2 (7.6 percent), and in July and August (1.6 percent).
The 2.43-billion pack sales figure (January to August) is also a decrease by 13.4 percent when compared to the same period in 2014, and if the sales trend from July and August continues until year-end, 2016 will see an ultimate sales drop of roughly 680 million cigarette packs to 3.68 billion compared to 2014.
The recovering cigarette output is also the result of a dramatic drop in early 2015 from consumers stockpiling cigarettes towards the end of 2014, right before the policy took effect, said the ministry.
“We assess that our anti-smoking policy has made progress for the most part,” said a ministry official. “Once we begin attaching warning (graphic) images on cigarette packets starting December 23, the effects will be even greater.”
By Joseph Shin (email@example.com)