'Sin taxes' surge over past 5 years

By Yoon Ja-young

Government revenue from so-called sin taxes has risen steeply over the past five years. While the government plans to collect more of such taxes, some point out that it is levying a relatively bigger burden on lower income workers.

According to data submitted to Rep. Shim Jae-chul of the main opposition Liberty Korea Party, the government levied 18.6 trillion won ($16.5 billion) taxes on goods and services that are deemed to have a negative impact on society such as cigarettes, alcohol and gambling last year.

This compares with between 11 and 12 trillion won for 2012, 2013 and 2014. It jumped to 15.9 trillion won in 2015 following a cigarette tax hike. The government started levying a 77 percent individual consumption tax on cigarettes in 2015, on top of raising other cigarette related tax rates.

Of the 18.6 trillion won revenue from sin taxes last year, cigarettes contributed the biggest part at 12.4 trillion won, or 66.5 percent of the total. It includes a 3.7 trillion won cigarette consumption tax, 2.2 trillion won individual consumption tax and 1.5 trillion won value added tax.

The government levied 4.4 trillion won in taxes on alcohol. This included a 2.8 trillion won liquor tax, 845 billion won value added tax and 814 billion won education tax.

Gambling businesses also paid 174 billion won in taxes. Casinos were levied 140 billion won in taxes and horse racing, 27 billion won. Cycle and boat racing contributed 7 billion won in taxes to state coffers.

The government earned 1.6 trillion won from lottery businesses. Those who win first prize in the Lotto for instance pay 33 percent of their prize money as income tax.

Since experts agree that a tax hike will be essential to fund snowballing social welfare costs, the imposition of sin taxes is also likely to rise steadily in the future.

Oh Moon-sung, a professor at Hanyang Women’s University, said in a forum organized by the Korea Institute of Public Finance that the government needs to expand sin taxes.

“The government should consider expanding sin taxes to other items. Since it is levied with objectives to regulate those activities deemed socially undesirable, the measure would get enough support from the public.”

While the government said back in 2015 that the cigarette tax hike was aimed at curbing the consumption of cigarettes, which are bad for people’s health, there was also criticism that increasing sin taxes leads to a bigger burden on low income workers.

Cigarette, alcohol and lotteries are generally perceived as goods more often consumed by them than the wealthy. Sin taxes are also levied regardless of income unlike other taxes which contribute to a redistribution of wealth.

“Sin taxes are indirect taxes levied regardless of one’s income. It thus could be too much of a burden on low income workers. Instead of focusing on collecting more taxes through sin taxes, the government should revise the current tax system,” Rep. Shim said.