[Desk Column] An Apology for Reduced-Risk Tobacco

[Asia Economy Reporter Myung Jin-gyu] The history of tobacco in Korea dates back to 1945 with the creation of the cigarette brand ‘Seungri’ to commemorate liberation. Since then, cigarettes have been named ‘Mugunghwa,’ ‘Geonseol,’ ‘Jaegun,’ and ‘Saemaeul.’ This was against the backdrop of promoting the tobacco industry as a foundation of tax revenue to rebuild the national economy after the war.

At that time, taxes on tobacco were imposed as it was considered a luxury and a leisure item. Decades later, the nature of the tax has changed. Tobacco has been identified as one of the causes of various diseases such as lung cancer, creating external diseconomies like increased medical expenses due to harmfulness, secondhand smoke, and fire hazards. These are recognized as social marginal costs, leading to the imposition of a Pigovian tax (named after welfare economist Arthur Cecil Pigou) on tobacco.

The tax on a pack of cigarettes consists of the Health Promotion Fund, Tobacco Consumption Tax, Individual Consumption Tax, Local Education Tax, and Value-Added Tax. Typically, 74% of the price of a pack of combustible cigarettes is tax. This structure causes tax revenue to increase significantly whenever cigarette prices rise.

For a while, the tobacco industry’s consensus was that tobacco was harmful, but heated tobacco products brought controversy. Since these products heat and inhale vapor instead of burning tobacco, the industry claimed reduced harmfulness and lower taxes. At least the risk of fire was eliminated, removing one external diseconomy factor.

Later, electronic cigarettes that only deliver nicotine appeared, complicating the tax calculations further. The existing tobacco tax system was adjusted according to nicotine content, making electronic cigarettes as expensive as combustible cigarettes. Despite controversy, research has shown that electronic cigarettes also cause secondhand smoke damage and that chemicals used to dissolve nicotine can cause cancer, devastating the electronic cigarette market.

Recently, smokeless tobacco has become a topic of debate. Smokeless tobacco is tobacco placed in a pouch about the size of a fingernail, which is inserted between the gum and lip to absorb nicotine. Since it is not burned, there is no fire risk, and it does not emit smoke, so it does not cause secondhand smoke harm. Many harmful substances such as tar are produced when tobacco is burned, so carcinogens are significantly reduced. Accepting these claims from the tobacco industry, the U.S. Food and Drug Administration (FDA) approved smokeless tobacco as a risk-reduced tobacco product for the first time in October 2019.

Because it causes fewer external diseconomies, the tax is also low. In Japan, smokeless tobacco is taxed about 1,000 won per pack equivalent of combustible cigarettes. However, in Korea, the tax is imposed per gram, the same as combustible cigarettes, reaching about 19,000 won. This is why smokeless tobacco, which is consumed at 1.7 billion units annually in Europe and 800 million units in the U.S., cannot enter the Korean market.

Both electronic cigarettes and smokeless tobacco are argued to increase youth access to smoking, warranting stricter regulations, which is a valid point but difficult to accept fully. Tobacco advertising is banned on broadcasts, but alcohol advertising is allowed. Smoking scenes have mostly disappeared from various dramas, but drinking scenes have increased. Earlier this year, the Korea Communications Commission attempted to partially allow virtual and indirect advertising of alcoholic beverages during late-night hours, but the Ministry of Health and Welfare and others opposed, causing the plan to fail.

Korean society is particularly lenient toward alcohol, but considering the ‘drunken violence (Jupoo)’ caused by intoxicated individuals, alcohol also imposes significant external diseconomies. The truth is that both tobacco and alcohol are harmful, but at least tax fairness should be maintained.

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