hankyoreh

Jan. 7. At the start of this year

After a tax hike that took effect at the beginning of this year nearly doubled the price of cigarettes in South Korea, there has been a major increase in sales of cigarettes at duty free shops, where prices remains the same.

The South Korean government and cigarette manufacturers are currently exploring the option of raising the price of cigarettes sold at duty free shops to decrease the gap between domestic and international sales.

Lotte Duty Free announced on Jan. 13 that sales of cigarettes from Jan. 1 to Jan. 11 of this year were up 21% over the same period last year. This validates predictions that the higher tax on cigarettes would drive demand to cigarettes sold at duty free shops.

Lotte Duty Free is the only store selling cigarettes at Incheon International Airport. “Last year, the rate of increase in sales was 10%, but sales went up much more at the beginning of this year,” a source at Lotte Duty Free said.

The gap widened considerably as the price of cigarettes in South Korea jumped around 2,000 won (US$1.85) on Jan. 1 of this year. A carton, or ten packs, of Esse Prime, which is manufactured by KT&G, costs 45,000 won (about US$41); but at duty free, the cost is only US$18 (19,419 won according to the Jan. 14 exchange rate), 43% of the price.

In other countries, the price of cigarettes at duty free shops is generally around 60 to 70% of the market price.

The main options being discussed for increasing the price at duty free shops are charging a fee or tax on duty free cigarettes as well or raising the price at which cigarettes are supplied to duty free shops.

Since charging a fee on duty free cigarettes to promote health would require revising various laws related to local taxes and health promotion, this would likely require additional discussion.

Tacking on a waste processing fee would only require revising the ordinance in question, but this fee would be insignificant, around 24.4 won (2 cents) per pack.

But increasing the price at which cigarettes are supplied to duty free shops is likely to be controversial, since this would only increase profits for cigarette makers. While the price of cigarettes in South Korea is regulated by the government, the supply price of cigarettes at duty free shops is left to the discretion of the wholesalers and retailers.

By Song Kyung-hwa, staff reporter

Please direct questions or comments to [english@hani.co.kr]