South Korea: Cigarette Price Hike Adds 4 Tril. Won to Tax Income

The government collected an additional 4.3 trillion won in taxes after the cigarette price hike in January this year, but not as many people have quit smoking as the government had expected, announced an NGO on Sunday.

As the government cut the budget to fund anti-smoking programs, there is criticism that it raised cigarette prices in order to collect more taxes rather than improve people's health.

The Korea Tax Internet, a local NGO for taxpayers' rights, said that total cigarette sales this year are expected to amount to 3.3 billion packs. This means the government will collect 11 trillion won in taxes in 2015, up 4.3 trillion won from the previous year.

The government had raised the tax on cigarettes from 1,550 won to 3,318 won per pack in January, which pulled up consumer prices from 2,500 won to 4,500 won.

The government had said that the cigarette price hike was aimed at curbing smoking. However, it turned out that cigarette consumption hasn't decreased by much. Monthly cigarette sales recorded 170 million packs in January, right after the cigarette price hike, plunging 48.5 percent from the previous year. But then it inched up to 180 million packs the following month, which is a 33.3 percent decrease from the previous year.

In March, however, sales jumped to 240 million packs and continued rising, recording 350 million packs in July.

"Cigarette sales decreased 23.4 percent from last year, but the government gathered 63.9 percent more taxes from smokers," the NGO said in a press release. "Prior to the increase, the government had announced that their tax income will increase by 2.8 trillion won, but it turned out that their tax income increased by 4.3 trillion won."

The price hike wasn't as effective in curbing the smoking rate as the government had anticipated. A survey in July showed that 35 percent of Korean adult males continue to smoke, which is 5.8 percent less from the previous year. The government had expected the smoking rate to fall by 8 percent following the cigarette price hike.

Experts point out that the government should have actively driven anti-smoking campaigns on top of raising prices. However, the government cut the budget for anti-smoking campaigns next year. The Ministry of Health and Welfare allocated 131.5 billion won to support anti-smoking programs next year, which is 16 billion won less than this year. It allocated 33.3 billion won for programs to prevent teenagers from smoking, which is 25 percent less than this year's 44.4 billion won.

There have been suspicions that the government raised the cigarette price to 4,500 won per pack in order to maximize tax income. According to a report by the Korea Institute of Public Finance, the government's tax income starts to decline if cigarette prices rise above 4,500 won, as more people start quitting smoking due to the higher prices. Enditem