Controversy over Harm + Tax Burden... Electronic Cigarettes Losing Popularity

Individual Consumption Tax to Apply Next Year on Extracted Liquid Tobacco from Stems and Roots Besides Young Leaves
Price of 30ml Bottle to Triple
Industry Says "Killer Tax Rate, Market Deterioration"

Electronic cigarette. (Photo by Getty Images Bank)

[Asia Economy Reporter Lee Seon-ae] "Expanding the tax base without adjusting the exorbitant tax rates is a death sentence for small business owners."

Starting from the new year, individual consumption tax will be imposed on tobacco products made not only from tobacco leaves but also from stems and roots, expanding the taxable range of tobacco. As a result, electronic cigarette retailers are feeling bewildered and dismayed. With the demand for liquid-type e-cigarettes already declining due to health concerns, the additional tax-driven price hikes will inevitably make the business environment even more difficult.

According to the tobacco industry on the 7th, a partial amendment to the Individual Consumption Tax Act, which adds tobacco made from parts other than tobacco leaves as taxable under the individual consumption tax, was recently passed at the National Assembly plenary session. Accordingly, starting from January next year, individual consumption tax will be applied not only to tobacco leaves but also to tobacco made from nicotine extracted from stems, roots, and other parts.

Liquid nicotine sold at e-cigarette stores is usually made from tobacco stems or roots, so it has been excluded from taxation until now. Therefore, with the expansion of the tobacco tax base, the price of liquid nicotine is expected to rise sharply. The industry anticipates that if the remaining two amendment bills pass the National Assembly along with the Individual Consumption Tax Act, a total tax of 1,799 KRW per 1ml of liquid (individual consumption tax 370 KRW, tobacco consumption tax 628 KRW, local education tax 276 KRW, and national health promotion charge 525 KRW) will be imposed.

Considering that a typical bottle of liquid is 30ml, this means a tax of 53,970 KRW will be levied. Currently, the price of 30ml liquid nicotine is around 30,000 to 35,000 KRW. Adding the tax would bring the price of one bottle of liquid close to 90,000 KRW, according to industry forecasts.

Choi, who operates an e-cigarette store in Jongno, said, "With demand already declining due to health concerns about liquid-type e-cigarettes, if the price of liquid rises as well, no one will come. Many e-cigarette stores may close next year," raising his voice.

In response, the Electronic Cigarette Association (Jeondamhyup) General Federation also issued a statement titled "Expanding the tax base without adjusting the exorbitant tax rates is a death sentence for small business owners," expressing serious concerns about the government's tax rate increase policy. In particular, the Jeondamhyup General Federation criticized the recent tax rate adjustment method, stating that the tax rate for liquid-type e-cigarettes was initially set very high. When the tax rate was decided in 2010, only the opinions of competitors opposing liquid-type e-cigarettes were considered, resulting in the world's highest tax rate, 3.65 times higher than the second highest.

The Jeondamhyup General Federation said, "Due to the high tax rate, it was inevitable to use nicotine derived from tobacco stems, which are not included in the current tobacco business law's definition of tobacco. Throughout this process, we have pleaded for a reasonable tax rate to be set and for these products to be formally incorporated into the tobacco market," and pointed out that "it is necessary first to decide whether to include similar tobacco products under the Tobacco Business Act after various discussions, including reasonable tax rates for similar tobacco products."

They explained that expanding the taxable range solely for taxation purposes in the tax law is an incomprehensible measure, and that recognizing these issues, a review reflecting the progress of discussions on the Tobacco Business Act should be conducted.

This content was produced with the assistance of AI translation services.