Rising Tax Revenue from E-Cigarettes in South Korea

According to a report by F on September 19th, recent data shows that tax revenue from traditional tobacco consumption in South Korea is continuously decreasing, while tax revenue from e-cigarettes is significantly increasing.

According to data obtained by Democratic Party lawmaker Wi Sun Kun on the 19th from the Ministry of Administration and Security, the tobacco consumption tax for 2023 is 37.44 trillion Korean won, slightly lower than the previous year's 37.424 trillion Korean won.

According to the Local Tax Law, tobacco consumption tax is imposed on tobacco products manufactured or imported, collected by local governments from tobacco manufacturers and importers. However, since the price of tobacco already includes the tobacco consumption tax, it is actually the smokers who bear this tax.

The tobacco consumption tax rates vary depending on the category. Regular cigarettes are taxed at 1,007 Korean won per 20 cigarettes, e-cigarettes with nicotine e-liquid are taxed at 628 Korean won per milliliter, and cigarette-shaped e-cigarettes are taxed at 897 Korean won per 20 cigarettes.

The tobacco consumption tax on traditional cigarettes decreased from 3.1235 trillion Korean won in 2021 to 3.1046 trillion Korean won in 2022, and further dropped to 2.9837 trillion Korean won in 2023. In contrast, the tobacco consumption tax levied on e-cigarettes increased from 503.3 billion Korean won in 2021 to 637.4 billion Korean won in 2022, a growth of 26.6%. It further increased to 759.7 billion Korean won in 2023, marking a 19.2% growth compared to the previous year.

However, South Korean Democratic Party lawmaker Wei Gun pointed out that "Statistics show a significant increase in tax revenue from e-cigarettes, but fail to fully reflect the reality." Currently, 90% of the synthetic nicotine e-cigarettes on the market are not considered tobacco under current law, placing them in a complete tax blind spot.

According to the Tobacco Control Law, only products made using tobacco leaves and natural nicotine as raw materials are considered tobacco. Synthetic nicotine e-cigarettes manufactured using chemical synthetic substances do not fall under the category of tobacco, and thus are not subject to tobacco consumption tax, individual consumption tax, local education tax, and value-added tax.

The lawmaker called for a comprehensive consideration of factors such as tobacco definitions, tax standards, and tax rates in order to develop appropriate measures.