[The Editors' Verdict] Cigarette Price Hike Debate Reignites Amid 'Tax Revenue Shortfall'

Soybean Prices Rise Above 8,000 Won
Significant Portion of Taxes Burdened by Common People
Tax Policies Should Consider Social Classes

The debate over raising cigarette prices has reignited. This follows the claim by Seo Hong-gwan, director of the National Cancer Center, at the recent ‘36th World No Tobacco Day Commemoration and Forum’ that cigarette prices should be increased to 8,000 won, the average level among OECD countries. Seo is known for having doubled cigarette prices in 2015.

Kwangho Lee, Head of Distribution Economy Department

Currently, South Korea ranks fifth lowest in cigarette prices among the 38 OECD countries. The usual price for a pack (cigarette type) is 4,500 won, which has remained unchanged for eight years since it was raised by 2,000 won from 2,500 won on January 1, 2015.

Raising cigarette prices is a typical example of a ‘Sin Tax’ imposed to curb socially negative impacts. However, such increases often face backlash as a ‘tax hike on the working class,’ since relatively poorer people tend to consume more cigarettes.

According to the National Health Information Portal, the smoking rate among the top 20% income group is 12.6%, whereas it is 20.8% among the bottom 20%, showing an 8.2 percentage point difference. This means that a significant portion of the taxes levied on cigarettes is borne by the lower-income population.

The issue lies in the timing. As of April, national tax revenue was 134 trillion won, falling short by 33.9 trillion won compared to last year. In particular, this year’s tax revenue shortfall is expected to reach up to 50 trillion won. Given the serious resistance to direct taxes, there is suspicion that raising cigarette prices is being considered as a relatively easy way to collect indirect taxes.

The tax portion of cigarette prices is very high. For a 4,500 won pack of cigarettes, a total of 3,323 won in taxes is imposed. This includes cigarette consumption tax of 1,007 won, local education tax of 443 won, individual consumption tax of 594 won, value-added tax of 409 won, national health promotion charge of 841 won, waste disposal charge of 24.4 won, and tobacco production stabilization fund of 5 won. For heated tobacco products, about 3,004 won, or 90%, is tax.

If cigarette prices are raised, the government can secure a substantial amount of tax revenue. The Ministry of Economy and Finance collected 12 trillion won in cigarette taxes last year. In 2014, before the price increase, 4.36 billion packs were sold, but despite a roughly 17% decrease to 3.63 billion packs last year, tax revenue increased by nearly 5 trillion won.

From the Ministry of Economy and Finance’s perspective, given the severe tax revenue shortfall, raising cigarette prices may be an attractive option. Moreover, considering the current government’s stance against supplementary budgets while emphasizing ‘sound fiscal management,’ this kind of tax increase card is too valuable to pass up.

However, tax policy must be fair and equitable. The process of imposing taxes should balance the diverse social classes and circumstances within society.

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