Korea cigarette tax hike predicted to slash sales

KT&G said on Thursday that the prices of all its cigarettes sold on the South Korean market would increase by WON2,000 (US$1.80) starting on January 1, according to a Korea JoongAng Daily story. The increase is in line with the government’s increase in tobacco taxes.

With the increase in place, KT&G’s brands such as Esse, The One and Raison will retail at WON4,500, up 80 percent from WON2,500 now. Lower-tier cigarettes including This, Hallasan and Lilac will retail for WON4,000, up 100 percent from WON2,000 now.

KT&G initially considered adding an extra WON200-500 on top of the required tax increase in an attempt to offset the predicted decline in the value of its sales. ‘We expect decreases in sales volume and revenues due to the price increase, but we placed only the minimum increase because of concerns for any negative effects that the price increase will have on households with lower incomes,’ KT&G was quoted as saying in a statement.

The government defended its decision to raise taxes in the wake of a backlash from the public, saying that the measure was meant to discourage tobacco use.

It estimated that the WON2,000 rise will cause a 34 percent decrease in annual sales of cigarettes, with tobacco companies losing out on WON940 billion in sales.

Korea has among the lowest cigarette prices of nations within the Organization for Economic Co-operation and Development (OECD), while the proportion of Korean men who smoked stood at 44 per cent during 2013, which was among the highest smoking incidences in OECD countries.

Opposition politicians and critics have accused the government of attempting to plug holes in its tax revenues by squeezing ordinary citizens while maintaining tax cuts for the wealthy.

Others have questioned why the authorities in Korea, where cigarette prices have not been increased for 10 years, have suddenly decided to impose an increase so huge that it is likely to destabilize the market.

Meanwhile, Philip Morris was said to have decided to raise its prices by WON2,000 while Imperial Tobacco was going for a WON2,200 increase.