South Korea may Increase Cigarette Tax to Offset Economic Recession

According to a report by South Korean media outlet ET News, the South Korean government is considering increasing cigarette taxes to compensate for the tax revenue losses caused by a prolonged economic recession. Some individuals have even suggested the possibility of a significant price hike in cigarettes next year, with prices potentially reaching as high as 8,000 Korean won.

According to industry insiders, a recent academic conference discussed the argument of gradually increasing cigarette prices to ₩900 per year. The conference, titled "Current Status and Future Prospects of Tobacco Price Policies," organized by the South Korean Smoking Cessation Association, highlighted the need for a gradual increase linked to price indices, rather than a sudden hike.

Starting from 2024, the price of cigarettes in South Korea must gradually increase every year to maintain the real price of cigarettes relative to the total income of the population. By 2030, the price of cigarettes will reach 10,000 Korean won, the average for OECD countries. This move is expected to stabilize tax revenue and effectively discourage continuous smoking, ultimately reducing the smoking rate. 

Director Lee Sung-gwi of the Korea Center for Tobacco Control Research and Education highlighted the limitations of the government's previous incremental price increases, stating, "We need a policy that convinces people we can achieve this." 

In addition to the gradual price increase, a plan to raise prices by approximately 1,800 Korean won every two years has been proposed. However, some argue that this is not realistic, as the increase in cigarette prices from 2,500 Korean won to 4,500 Korean won in 2015 led to increased social costs due to public resistance against taxation. 

So far, the price of cigarettes and tobacco taxes in South Korea have sporadically increased substantially. While a significant increase in cigarette prices seems to have an obvious effect in reducing smoking rates, the impact on smoking cessation is short-lived. In fact, as cigarette prices rose, the smoking rate decreased from 24.2% in 2014 to 22.6% in 2015, a decrease of 1.8 percentage points. However, the following year, in 2016, the smoking rate began rising again, reaching 23.9%. Although tax revenue seemed to increase in the short term, since 2016, tobacco-related tax revenue has stagnated or decreased.