Cigarette tax increase unjust, says lawmaker

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Cigarette tax increase unjust, says lawmaker

The government raised cigarette prices at the beginning of the year to encourage smokers to quit, and while cigarette sales initially dropped, they have since rebounded to pre-hike levels, according to data by the Korea Tobacco Association (KTA).

The Ministry of Strategy and Finance and the Ministry of Health and Welfare are now facing accusations that their policy has done nothing but increase tax revenue and financially burden low-income smokers.

According to data submitted by the KTA, a trade association of tobacco sellers in Korea, to Rep. Yoon Ho-joong of the New Politics Alliance for Democracy on Tuesday for the annual parliamentary audit, July’s cigarette sales hit 350 million packs. Over the past three years, monthly sales have averaged 362 million packs.

At the end of 2014, the Finance Ministry decided to raise cigarette prices by 2,000 won ($1.66) starting Jan. 1, saying its main purpose was to discourage people from smoking and enhance public health.

As soon as the policy came into effect, cigarette sales nearly halved to 170 million packs in January from 390 million packs in December 2014.

The drop has been chalked up to smokers making a New Year’s resolution to quit or thrifty smokers simply stocking up on cigarettes before the price hike.

However, cigarette sales have steadily increased from 180 million packs in February to 350 million packs in July.

In the first half of the year, the government has collected 1.21 trillion won in extra tax revenue compared to the same period last year, according to the Finance Ministry.

Yoon estimated that the government will see tobacco tax revenue of up to 10 trillion won by end of this year if cigarette sales keep rising in the latter half.

Last year, the government estimated the tobacco tax revenue at around 6.6 trillion won.

Last year, the state-run Korea Institute of Public Finance predicted that the price hike would reduce tobacco consumption by 34 percent and boost tax revenue by 2.78 trillion won.

Around the same time, the National Assembly Budget Office (NABO) opposed the hike, citing its own study showing that raising prices is not the best way to get people to quit smoking.

The NABO study estimated the price hike would reduce tobacco consumption by 20 percent, significantly lower than the government’s estimate. However, it had higher expectations for the government’s expanded tax revenue, which it said could grow by as much as 5 trillion won per year.

Lawmaker Yoon said the price hike only helped the Finance Ministry expand its tax revenue and failed to address public health concerns.

“The raised tobacco tax turned out to be an additional financial burden for smokers, especially low-income smokers,” Yoon wrote in a statement, emphasizing that the tax did nothing to help them quit.

“The Finance Ministry will be able to fill last year’s tax deficit with the extra tax revenue gained from the tobacco tax,” Yoon added, saying that it will be difficult for the ministry to avoid charges that the increase was solely to fill the deficit.

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