Liquid-based synthetic nicotine products, which have so far been exempt from taxation, would be liable for individual consumption taxes, tobacco taxes, and surcharges. (Image courtesy of Yonhap)
SEOUL, May 14 (Korea Bizwire) – As the South Korean government accelerates research into the potential hazards of synthetic nicotine to determine regulatory measures, attention is turning to whether these products could be subject to tobacco taxes.
If synthetic nicotine is included under the Tobacco Business Act’s regulatory purview, liquid-based synthetic nicotine products, which have so far been exempt from taxation, would be liable for individual consumption taxes, tobacco taxes, and surcharges.
With growing public sentiment that synthetic nicotine should be regulated in line with conventional tobacco products, predictions that taxation on liquid-based products will be inevitable are gaining traction.
According to officials from relevant ministries, health authorities will commission a study this month to assess the potential harms of synthetic nicotine.
This research was requested by the National Assembly, which is currently deliberating an amendment to the Tobacco Business Act that would regulate synthetic nicotine as “tobacco” under the law.
The National Assembly ordered the government study amid conflicting views on whether synthetic nicotine should be recognized as legal “tobacco” before its potential dangers are verified or if it should be regulated as such from the outset.
“We will endeavor to complete the research study by the end of this year at the latest,” said an official from the Ministry of Health and Welfare.
The government’s urgency in addressing the synthetic nicotine regulation issue stems from growing calls to eliminate this regulatory blind spot.
Currently, synthetic nicotine products made from chemical compounds are not considered “tobacco” under the law. The Tobacco Business Act defines “tobacco” as products containing tobacco leaves.
According to the government, while some liquid-based products on the market contain natural nicotine, most use synthetic nicotine.
These products, not classified as tobacco under the Tobacco Business Act, can be sold and advertised online—practices prohibited for conventional cigarettes. Additionally, they are not required to carry health warning labels or graphics.
Furthermore, they are exempt from tobacco-related taxes and surcharges mandated by law. Compared to traditional cigarettes, consumers can purchase synthetic nicotine products at lower prices, while sellers can generate higher profits.
The controversy intensified when the global tobacco company British American Tobacco (BAT) recently announced plans to launch synthetic nicotine e-cigarettes exclusively in South Korea.
BAT’s stance of passing on tax and surcharge savings as consumer benefits drew criticism that the company was exploiting South Korea’s regulatory loopholes.
Capitalizing on this regulatory gap, the synthetic nicotine market has experienced rapid growth.
According to data provided by the Korea Customs Service to Rep. Kim Young-joo of the Democratic Party, imports of synthetic nicotine liquids for e-cigarettes surged from 56 tons in 2020 to 119 tons in 2022, more than doubling in just two years.
If synthetic nicotine is regulated as tobacco under the Tobacco Business Act, liquid-based products containing synthetic nicotine will automatically be subject to tobacco taxes and surcharges.
This is because all tobacco products are subject to individual consumption taxes and tobacco consumption taxes under the law. The National Health Promotion Charge and other surcharges are also applied.
Recent amplified calls for regulating synthetic nicotine have fueled predictions that it will lead to expanded taxation on liquid-based products.
Interpretations suggest that the government has included a comparison of the hazards posed by synthetic and natural nicotine in the scope of the commissioned study, considering the potential taxation of synthetic nicotine.
Under the Tobacco Business Act, the tax burden on various tobacco products, including cigarettes and e-cigarettes, is typically determined based on their harmfulness. Therefore, to establish tax rates and taxable units for synthetic nicotine, a credible assessment of its potential harms is necessary.
The industry argues that synthetic nicotine is less harmful than conventional cigarettes and advocates for lower tax rates if taxation is implemented, necessitating preparation for such claims.
Ashley Song (ashley@koreabizwire.com)
