Tobacco tax has mixed effect on sales

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Tobacco tax has mixed effect on sales


Even though the amount of tobacco sold in Korea rose compared to the previous year, the government has argued that it dropped compared to two years ago, before it raised cigarette prices from 2,500 won ($2.23) a pack to 4,500 won in January 2015.

According to the Ministry of Strategy and Finance on Monday, there were a total of 2.43 billion packs of cigarettes sold during the first eight months of this year, which is 15.7 percent higher compared to the previous year, 13.4 percent lower compared to the same period in 2014, before the price change was made.

“The sale of cigarettes rose compared to the previous year due to the base effect from last year when demand dropped significantly after the new price was introduced,” said Kim Wi-jung, a director at the Finance Ministry. “The year-on-year growth rate is slowing and we believe this suggests that the consumption is dropping, as well.”

In fact, tobacco sales rose 42.8 percent year-on-year in the first quarter of this year and the figure increased by 7.6 percent in the second quarter. During July and August, sales rose 1.6 percent year-on-year on average and the government argued this is a positive sign that consumption is slowing.

The government expects that around 3.68 billion packs of cigarettes will be sold this year if the current pace continues, and this will be an increase of 10.5 percent from the previous year but a decrease of 15.6 percent from 2014. Many have criticized the government’s decision to increase the tobacco price, as they believed it was focused on collecting more taxes, instead of lowering the number of smokers in the nation as it said its main purpose was.

In fact, the government has collected 8.1 trillion won during the first eight months of this year through taxes on tobacco products, which is 25.1 percent more compared to the same period last year.

The price of a pack of cigarettes only accounts for 26 percent of the retail price of 4,500 won, or just 1,182 won, while 54.5 percent of the cost is made up of taxes and the rest is used to promote public health.

The government, however, said it expects the consumption to drop further as they plan to have tobacco companies put warning labels on every cigarette pack sold here in Korea starting from Dec. 23.

Industry insiders have argued that, looking at other countries that already have adopted the system, warning labels will not have much impact on consumption.

In Canada, for example, the U.S. Food and Drug Administration has estimated only a 0.088-percentage point reduction in smoking rates after graphic warning labels were mandated.

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