South Korea’s E-Cigarette Tax Loophole Creates 35-Fold Disparity

According to KBS News on November 14th, due to the different forms of nicotine, the tax rate for e-cigarettes could vary by up to 35 times, leading to unreasonable taxation practices.

KBS reporters have discovered that there are various disposable e-cigarette products available in convenience stores, which may look similar on the outside, but have different forms of nicotine inside. One type contains liquid nicotine, where nicotine-infused e-liquid is absorbed into cotton. The other type contains solid nicotine, with nicotine particles designed to combine with nicotine-free e-liquid when smoked.

The industry leader of the e-cigarette industry pointed out, "This solid nicotine cannot be used alone. This is the first time solid nicotine has been combined with e-cigarettes.

Both products can provide the equivalent of two regular cigarette packs worth of nicotine, with e-liquid capacity of 2 milliliters. However, their tax situations are different. Solid e-cigarettes are taxed based on 0.4 grams of solid weight, while liquid e-cigarettes are taxed based on the entire 2 milliliter bottle of e-liquid.

According to tobacco consumption tax, a regular pack of cigarettes requires a payment of 1,007 Korean won (0.7 USD). The same amount of liquid e-cigarettes requires 628 Korean won (0.45 USD), while HNB products are around 641 Korean won (0.46 USD), but solid types are only about 17 Korean won (0.01 USD). Even comparing only within the e-cigarette category, the tax rate difference reaches up to 35 times. KBS says this could distort market distribution.

Currently, only natural nicotine is subject to tobacco-related taxes, while a proposed bill to tax synthetic nicotine, which makes up a majority of the e-cigarette market, is being debated in Congress. The media reports that if solid-state e-cigarettes continue to be popular among consumers, even if synthetic nicotine is taxed, they may be able to evade taxes through the solid-state classification.

Director of the South Korean Tobacco Control Research and Education Center, Lee Seong-kyu, said: "Due to the unpredictable nature of tobacco companies' strategies, this process is bound to be recurring. Businesses will seek alternative pathways within the market to circumvent this."