National Assembly set to raise e-cigarette taxes

A tax increase on electronic cigarettes is one step closer to passage after lawmakers moved the bill out of committee on Friday.

If it passes the National Assembly, the individual consumption tax on e-cigarettes will increase from 50 percent to 90 percent, on par with conventional cigarettes. That means the price of one pack of 20 e-cigarette sticks could go up by 403 won ($0.36).

Other tax increases are being considered in the bill as well. A tobacco consumption tax, currently 528 won per pack, could rise to 897 won, and a national health promotion fee will likely to 750 won from 438 won.

The taxes would go into effect as early as December if they pass.

There are currently two types of e-cigarettes sold in Korea: Philip Morris’ IQOS and British American Tobacco’s Glo, both of which entered the market early this year.

Korea’s top tobacco company, KT&G, is planning to release its own e-cigarette, LIL, next month.

Unlike conventional cigarettes, e-cigarettes heat rather than burn tobacco. As a result, they have not been subject to existing cigarette taxes.

Currently, a pack of 20 tobacco sticks for IQOS, the market leader, goes for 4,300 won, with 1,739 won going to taxes. If the higher individual consumption tax is passed, that portion rises to 2,986 won, but the tobacco industry has not yet confirmed how the tax hike might affect consumer prices.

“If the tobacco consumption tax and national health promotion fee increase by an equal amount, a consumer price hike will be inevitable,” a Philip Morris spokesperson said. “But the exact amount will be decided after discussion with headquarters.”

The average price of cigarettes in Korea is 4,500 won a pack. Although the e-cigarette device has an initial cost of 90,000 to 120,000 won, the sticks are considered an economical choice for smokers. British American Tobacco sells packs of 20 e-cigarette sticks for 4,300 won.

“It is true that a tax increase would be a factor in a consumer price hike,” a British American Tobacco spokesperson said. “But whether we will raise the price or not is undecided, let alone how much we will raise it.”

Anticipation for a tax increase has led users to hoard e-cigarette sticks.

The Ministry of Strategy and Finance said Sunday that it would crack down on consumers that buy e-cigarette sticks for resale purposes, threatening a penalty of up to 50 million won or two years in prison.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]