Increasing Tax Evasion with Synthetic Nicotine in South Korea

Increasing Tax Evasion with Synthetic Nicotine in South Korea
The South Korean government continues to battle tax evasion as synthetic nicotine use in e-cigarettes rises, resulting in losses of around 800 million Korean won.

According to a report from South Korean media outlet Naver on October 19th, the problem of using synthetic nicotine as natural nicotine to evade taxes is becoming increasingly serious. Within the past nine months, a total of approximately 800 million Korean won has been evaded in taxes.

According to data provided by Kim Young-joo, a member of the Health and Welfare Committee of the South Korean National Assembly, a total of 110 cases of tax evasion were discovered from November last year to July this year by falsely declaring natural nicotine as synthetic nicotine. The scale of domestic tax losses amounted to 870 million Korean won.

E-cigarette liquid, which is made from natural nicotine extracted from tobacco leaves, falls under the "cigarette" category according to tax laws. Each milliliter of this liquid is subject to a domestic tax of 1,799 Korean won imposed on manufacturers. However, synthetic nicotine liquid, which is prepared using chemical substances, is classified as an "industrial product" under tax laws and is not subject to any taxes. This discrepancy in tax treatment has led numerous manufacturers to use synthetic nicotine in order to evade taxes. Last year, the total value of imported e-cigarettes using synthetic nicotine liquid amounted to approximately 9.9 billion Korean won, yet no domestic taxes were collected on these imports.

In addition, the import volume of synthetic nicotine liquid used in e-cigarettes has been steadily increasing. In 2020, it was 56 tons, and it rose to 119 tons last year, more than doubling. It is expected that the import volume for the first half of this year will reach 91 tons, which is expected to exceed 180 tons by the end of the year. Especially for e-cigarettes that use synthetic nicotine liquid, they are not considered cigarettes under current laws, so they can be sold in physical stores without being subject to various restrictions such as warning labels. This has been criticized for accelerating the increase in smokers.

Member of Parliament Kim Young-Joo emphasized the need to revise laws to impose equal taxes on synthetic nicotine and natural nicotine e-cigarettes, as the current lack of definition for synthetic nicotine has resulted in various drawbacks. He also urged for measures to be taken to prohibit online marketing tactics targeting minors, which are being employed by certain e-cigarette manufacturers.

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