Legal Action Taken Against Tax Lawsuit on E-cigarette Manufacturers in South Korea

According to ihalla news, the Jeju Special Self-Governing Province in South Korea has recently designated a law firm in partnership with 164 local governments to respond to lawsuits filed by some liquid e-cigarette manufacturers in Seoul Administrative Court seeking to cancel the collection of cigarette taxes. This lawsuit originated in January of this year when local governments across the country imposed unpaid cigarette taxes on 17 liquid e-cigarette manufacturers. It is understood that the unpaid taxes by liquid e-cigarette manufacturers from 2016 to 2020 amounted to 110 billion Korean won, with Jeju Island collecting 3.3 billion Korean won. Cigarette taxes consist of tobacco consumption tax, local education tax, and personal consumption tax, with tobacco consumption tax and local education tax falling under local taxes and contributing to local government finances. According to tobacco industry regulations, tobacco is typically defined as being made from tobacco plants' "leaves" rather than extracting nicotine materials from the main parts of tobacco such as stems or roots. With the implementation of the revised local tax law in 2021, e-liquid made from stems or roots is also subject to taxation.

However, with the implementation of the newly revised local tax law in 2021, tobacco made from tobacco stems and roots is also included in the taxable scope.

Local governments across the country, including Jeju Province, are now revisiting the reasons for imposing taxes on liquid e-cigarette manufacturers between 2016 and 2020. The move comes after audit findings from the Audit Office and investigations by the Customs Office revealed that these companies have been using tobacco leaves in their products, which are subject to taxation instead of the non-taxable components.

Out of the 17 companies that received tobacco tax notifications from Jeju Province and other regions, 9 of them have filed administrative lawsuits opposing the new local tax law. Eight of these companies have initiated legal proceedings. It is reported that these companies have collectively filed lawsuits amounting to a staggering 43 billion Korean won. They do not acknowledge the findings of the Audit Office and claim that the taxation is unfair.

The remaining companies either filed lawsuits or did not file administrative lawsuits and have still yet to pay their taxes.