Cigarettes Should Cost MoreAt the beginning of this year, the government increased the price of a brand of cigarettes, the most popular in Korea, to 1,300 won ($1.03).
This price includes sales tax, which is categorized as a local tax, of 510 won, a local education tax of 255 won, value added tax of 118 won, an environmental tax of 4 won and a public health tax of 2 won. The rest of the price includes cost and margin. In fact, 68.4 percent of the cigarette price is made up of taxes.
However, cigarette prices in Korea are extremely low, as many foreigners are amazed to discover, meaning that the taxes on cigarettes are greatly lower than those of other countries.
The World Bank recommends that 65 to 90 percent of a cigarette's price be government-imposed taxes. Developed countries, in fact, impose higher taxes on cigarettes, and so prices are higher than in Korea. In addition to the United States and Japan, most European countries have put cigarette prices over the equivalent of 3,000 to 5,000 won per pack.
The policy of raising cigarette prices is a worldwide trend － chosen to reduce smoking and to compensate the government for various costs in public health services caused by smoking － because it is impossible to immediately outlaw the production, processing and sales of cigarettes. However, I cannot help point out serious problems in the methods used to price cigarettes in our society because they reverse the basic intention of the policy of increasing price, as an alternative to outlaw the product.
First, sales tax, the largest part of the cigarettes' price, is categorized as a local tax. Therefore, the public wonders whether local self-governments promote smoking in order to increase their tax revenues by selling more cigarettes rather than valuing the health of residents in their districts by adopting no-smoking measures.
Second, the education tax, which is an object tax, occupies a significant portion of cigarettes' price. It certainly runs counter to the principles of tax administration, in which imposing object taxes is known to be inappropriate. Moreover, there is no persuasive reason why smokers particularly have to contribute more in financing education in our country.
Furthermore, the Ministry of Education, which is supposed to promote no-smoking policies for youths, will face the contradiction that the more it promotes no-smoking measures, the less budget it will obtain. That may be why the education ministry and relevant bureaus show no response when it has been pointed out that smoking among middle and high school students is a serious problem in our society.
Third, there is no need to mention the damages of smoking any further, including the seriousness of indoor air pollution and environmental pollution because of cigarette butts, because we have long been aware of them. Smokers, of course, are responsible for causing all these problems.
And yet, 4 won of environmental tax per pack of cigarettes is just way too low. At least 5 percent of the cigarette price should be the environmental tax.
Fourth, there is concern regarding imposing a public health tax. The fund raised by the public health tax is used to inform smokers about the hazard of smoking and help them to quit, while protecting non-smokers from the possible hazards of secondhand smoking. Most of the fund will be returned to smokers to protect their health. Despite such uses, it occupies the lowest amount in pricing cigarettes, hinting at its low importance in official thinking.
Until now, many people have argued for increasing public health tax, but the Ministry of Finance and Economy has fought their argument, contradicting the global trend in the tobacco industry.
Far from raising the part of the public health tax in cigarettes' price, the government authority in charge of the budget instead attempted to raise the education tax unreasonably and to disregard the policy of imposing the public health tax in cigarette pricing. It is certainly the tail wagging the dog. Even if it does not reach 10 percent of cigarettes' price, as recommended by the World Health Organization, at least 1 percent of the public health tax should be used to raise funds to promote public health and to join the mainstream of the world.
What will be the positive outcome of raising the price of cigarettes? Of course, the rate and amount of smoking decrease as the price goes up. Many foreign countries have noted that a 10 percent increase in price will result in a 4 percent decrease in the smoking rate, of which the largest decrease takes place among young smokers. Raising the price has been the most effective means to stop youths from smoking, among various other measures.
Considering the level of our economy, South Korea is one of the countries that sell cigarettes at extremely low prices. They are sold at a level where middle and high school students do not feel a financial burden in buying them regularly. Then, how much should we raise the price? It should be focused on how much increase will make cigarettes too expensive for our youth. I would like to recommend that the price be increased to 2,000 won at first and then to 2,500 won and 3,000 won, gradually.
by Kim Il-soon