Tobacco tax brings a windfall

After the government raised cigarette prices by 80 percent last year, sales shrank less than expected, but as a result, the government enjoyed an unexpected windfall in taxes.

According to the Ministry of Strategy and Finance on Thursday, cigarette sales dropped 23.7 percent last year compared to the previous year, to 3.33 billion packs, after the government raised taxes, citing the health risks related to smoking.

Domestic tobacco production and imports fell 29.6 percent year-on-year, to 3.17 billion packs in 2015.

The government estimates it will collect 10.5 trillion won ($8.78 billion) in tobacco-related taxes in 2015, up 3.6 trillion won year-on-year.

This was far from the figure predicted by the Korea Institute of Public Finance before the government’s tax hike.

A study by the institute last year projected the move would cut tobacco sales 34 percent, while adding 2.8 trillion won in taxes - 800 billion won less than the revenue reported by the government.

Of the 3.6 trillion won collected, 1.4 trillion won will go to financing regional governments, 1.2 trillion won will fund public health measures and another 1 trillion won will be included in national tax revenue.

Local anti-smoking groups welcomed the shrinkage in sales.

“A sales shrinkage of more than 20 percent is impossible with other anti-smoking policies,” said Seo Hong-gwan, the head of the Korean Association on Smoking or Health and a professor at the National Cancer Center. “But the government will have to push other non-price related policies to prove that its main goal isn’t just to increase tax revenue.”

Local anti-smoking groups have demanded legislation that would ban tobacco advertisements at convenience stores and tobacco sales at the duty-free stores in Jeju International Airport.

Last month, the government considered crossing off cigarettes from the list of items sold tax free at Jeju International Airport, arguing for the need to protect public health.

The move was vehemently protested by some Jeju residents, who claimed that because the ban was only for the Jeju airport, it unfairly targeted local smokers and was a clear ploy to increase tax revenue.

“Those Jeju duty-free stores, which were discussed in the ban, are solely for Korean citizens,” read a statement written Tuesday by I Love Smoking, the nation’s largest smokers’ rights group. “If tobacco is dropped from duty-free shops, smokers will have no choice but to keep buying from regular stores. It allows the government to increase tax revenue.

“Already, Korean citizens are allowed to buy a limited amount of tobacco at all kinds of duty-free stores,” the group emphasized. “It is unfair to ban the sales at Korean-only duty free stores, while still allowing sales at others,” the group said.

“If the government’s main concern is on public health, it should also ban tobacco sales at all duty-free stores in Korea, and even cross off alcohol from there,” it added.

The government currently has no plans to do so.

BY KIM MIN-SANG, KIM JI-YOON [kim.jiyoon@joongang.co.kr]