BUSINESS

Will cigarette prices rise under new administration?

By Won Ho-jung
  • Published : May 1, 2017 - 14:16
  • Updated : May 1, 2017 - 17:00

Tobacco companies operating in Korea and smokers are wary, as the upcoming presidential election raises the possibility of another tax hike on cigarettes here.

With the exception of Hong Joon-pyo of the conservative Liberty Korea Party, none of the major candidates have explicitly promised a cut in the unpopular spike in cigarette prices that went into effect in 2015. 

(Yonhap)

Although other candidates such as front-runner Moon Jae-in of the liberal Democratic Party of Korea have said they are reviewing the possibility of lowering cigarette prices, industry watchers say that another increase in the excise tax may be used as a way to fund candidates’ proposed welfare programs.

“The last increase was said to be part of an anti-smoking effort, which is true, but another incentive was bringing in more tax revenue,” said an industry insider on condition of anonymity. “It’s not likely that the government will want to give that up.”

The excise hike in 2015 raised the average price of cigarettes here from 2,500 won ($2.20) per pack to 4,500 won.

The previous Park Geun-hye administration’s tax revenues rose from about 7 trillion won in 2014 to 10.5 trillion won in 2015. Last year, tax revenues reached 12.4 trillion won, with cigarette taxes making up 3.6 percent of total revenues.

The tax increase faced wide backlash for being a regressive tax that dealt a harsher blow to smokers in lower income ranges. A recent study by Khang Young-ho, a professor of health policy and management at Seoul  National University’s College of Medicine, showed that people with lower income were more likely to smoke more. The study, which covered 245 cities and districts nationwide, did not find a single district in which people in the top 20 percent of income smoked more than people in the bottom 20 percent.

Industry insiders said the negative sentiment surrounding the excise hike was likely to push the hike back, and to narrow its scale.

“Any raise is more likely to come in the long term than right away,” said a spokesperson for a tobacco company operating here. “Even if the government needs funds, who would risk turning public opinion against themselves early on in their administration?”

“There is probably no chance that the excise tax will be reduced, but any increase will definitely be less dramatic than the 2015 hike,” agreed a spokesperson at a different firm. 

By Won Ho-jung (hjwon@heraldcorp.com)