Cigarette Firms Make Large Profits after Price Hike

Source from:  YONHAP NEWS 09/23/2016

Top cigarette sellers in South Korea made a remarkable net profit last year from a price hike, an analysis from a legislator's office said Friday, a finding likely to mount more criticism on the companies that were found to have evaded taxes by abusing a loophole in a local law.

The analysis, provided by opposition lawmaker Park Young-sun's office based on financial statements of the top three firms, said each of the firms gained over 30 percent in pure profits in 2015 compared to the year before. The three companies are South Korea's sole tobacco producer KT&G, Philip Morris Korea and British American Tobacco (BAT) Korea.

KT&G's 2015 sales came to 2.82 trillion won (US$2.56 billion), an increase of 2.9 percent from the previous year, but its net profit jumped 32.2 percent to 987.9 billion won. For Philip Morris Korea, sales increased 15.3 percent to 810.8 billion won, but the net profit leaped 33.9 percent to 191.7 billion won.

BAT Korea's sales fell in 2015 by 13.5 percent, but it still managed to turn itself around from a net loss of 9.6 billion won in the prior year to 27 billion won net profit, the analysis showed.

The profit numbers were released just a day after the auditing agency said these companies were able to avoid over 200 billion won in taxes by using a loophole.

South Korea raised the cigarette price from 2,500 won to 4,500 won effective Jan. 1, 2015, saying the hike is intended to bring down the number of smokers for improved national health. The cigarette tax, paid by the companies to the state, consequently was raised by 1,591 won per pack.

The auditing agency said the tobacco firms stashed their cigarettes at temporary warehouses to pay the tax at a rate before the price increase and made profit by selling the cigarettes after they became more expensive. Enditem