Will gov’t push to label e-cigarettes raise tobacco prices?

Cigarette packs are displayed at a convenience store in Seoul in this recent photo. Yonhap

A possible cigarette price hike is gaining attention as the government seeks to expand taxable income sources and the National Assembly moves to impose a new tax on synthetic nicotine used in e-cigarettes.

On Monday, the National Assembly’s Strategy and Finance Committee approved a revision to the Tobacco Business Act that expands the legal definition of tobacco to include synthetic nicotine. To take effect, the revision needs to be endorsed in a parliamentary plenary session.

A lab-produced chemical, synthetic nicotine is currently not regulated as tobacco because it is not derived from tobacco leaves. As a result, it is exempt from tobacco taxes, which make up about 74 percent of the price of a regular cigarette pack.

Under the circumstances, experts said Tuesday that the parliamentary revision is likely aimed at “testing the waters” on public sentiment by first imposing the tax on e-cigarettes before proceeding with a possible cigarette price hike as part of a broader tobacco tax reform.

They noted that e-cigarette use is increasing, which helps predict how to approach pricing for regular cigarettes.

Cigarette price increases require a cautious approach, as cigarettes are considered an everyday product for many, and a hike could trigger public backlash, they said.

Accordingly, the cost of a cigarette pack has remained at 4,500 won ($3.20) for 10 years, after it was raised from 2,500 won in 2015.

The government is expected to secure 930 billion won in annual tax revenue if the revised bill on synthetic nicotine is approved in a parliamentary plenary session.

As for regular cigarettes, more than 9 trillion won in additional tax revenue is anticipated each year if the price per pack goes up from the current 4,500 won to 8,000 won.

Shin Se-don, professor emeritus of economics at Sookmyung Women’s University, pointed to Korea’s cigarette price being lower than the OECD average of about 10,000 won, saying, “Such a low price makes for another good reason for a price hike.”

Inha University economics professor Shin Il-soon added, “I’d say the parliamentary revision is being made in cooperation with the government to overcome shortfalls in tax revenues.”

He said the Lee Jae Myung administration has been desperate to secure tax revenue to help implement its expansionary fiscal policy, pointing out that the National Assembly is dominated by the ruling Democratic Party of Korea.

According to the Ministry of Economy and Finance, the government collected 232.6 trillion won in national taxes from January to July this year.

That amount represents just 62.5 percent of the government’s annual tax revenue target of approximately 372 trillion won, following a shortfall of 56.4 trillion won in 2023 and another 30.8 trillion won in 2024.