hankyoreh

By Choi Sung-jin, staff reporter

The South Korean government announced plans to raise taxes on cigarettes by more than twofold, increasing the price per pack from 2,500 won (US$2.41) to 4,500 won (US$4.34).

The government’s argument is that the hike would have major disease prevention effects as the increased prices would reduce smoking rates. But the opposition and civic groups, including People’s Solidarity for Participatory Democracy (PSPD), are criticizing what they say is an attempt to raise indirect taxes as an easy source of tax revenues to make up for a budget shortfall.

Critics are also characterizing the increase as a regressive tax that puts a heavier burden on the working class households that are the primary consumers of cigarettes in South Korea.

At a meeting of economic ministers on Sept. 11, the government decided on and announced the comprehensive anti-smoking plan, which would raise the price for top-selling Esse Lights and other brands from 2,500 won to 4,500 as of Jan. 1, 2015. Other measures in the plan include warning images on cigarette packs and a ban on cigarette advertising in convenience stores.

The cigarette price increase is actually a cigarette tax increase. South Korean cigarette taxes, including cigarette consumption, local education, and National Health Promotion Fund (NHPF) contributions, currently amount to 1,550 won (U$1.495) per pack, or 62% of the 2,500 won price. The plan approved this week would add another 1,768 won (US$1.706) in taxes, including a newly created “individual consumption tax” of 594 won (US$0.573) and an increase in the NHPF contribution from 354 won (US$0.342) to 841 won (US$0.811).

After the increase, taxes would account for 88.4% of the cost per pack, with 3,318 won (US$3.201) paid in taxes for every 4,500 won pack purchased.

For the first time, prices would also be tied in with inflation, meaning that the cost per pack could increase with the cost of living as of 2015.

The background of the plan is South Korea’s status as the country with the highest rate of smoking in the OECD, and the fact that tobacco prices haven’t been raised since 2004.

“If our goal is to reduce the serious damages to public health caused by smoking, we have to reduce our smoking rate - the highest in the world right now - to below 29% by 2020,” said Minister of Health and Welfare Moon Hyung-pyo in the announcement. An estimated 44% of South Korean adult males smoke.

Critics are countering that the plan is a “working class tax hike” that disproportionately affects low earners. National health statistics show that smoking rates for the lowest-earning quartile are 53.9% for men and 11.2% for women - significantly higher than the respective rates of 44.1% and 4.1% for the top-earning quartile.

The lower earners also tend to smoke more, which translates into a higher percentage of income spent per pack. The bottom 10% of earners spent 1.48% of household income on cigarettes, while the top 10% spent just 0.45%.

In a statement released after the plan‘s announcement, PSPD said, “Because cigarettes are an item that is consumed at higher rates the lower one’s income, most of the burden of the tax increase will fall on the working class.”

“It is enough to raise suspicions that the government is attempting to make up revenues by increasing indirect taxes, which encounter relatively less resistance and offer a stable source of revenue, rather than direct taxes, where there tends to be very heavy resistance,” the statement continued.

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