Tobacco tax revenue rises despite sales fall

The nation’s tax revenue from tobacco sales has increased in the first four months of this year, despite a fall in cigarette sales following a tax hike on tobacco products, government officials said Sunday.

In the January-April period, the tax revenue from cigarette sales jumped 600 billion won ($550 million) from a year ago, officials said. However, sales fell to 180 million packs in January from 400 million packs in December of last year.

In April alone, the tax revenue from tobacco sales grew 350 billion won from a year earlier, while the March and April tobacco sales volume dropped 30 percent from a year earlier.

“The price hike will likely bring a sharp increase in the government’s tax revenue from tobacco sales this year,” a government official said.

The decoupling of tax revenue from sales volume has fueled controversy that the government raised taxes to increase revenue, rather than encourage people to quit.

The controversy ignited after the government implemented an unprecedentedly high tobacco tax hike starting Jan. 1 this year, almost doubling the cigarette prices to 4,500 won ($4.13) per pack from the previous 2,500 won.

Tax now accounts for about 60 percent of the price of tobacco, with regional education tax, tobacco consumption tax, compulsory health enhancement and exhaust processing costs and individual consumption tax all levied.

The government tax revenue is expected to continue to grow, officials said, as tobacco sales pick up as the psychological impact of the price hike wears off.

In a Finance Ministry report to the National Assembly last year, the government estimated that the price hike could raise an extra 2.85 trillion won in 2015.

Last year, the government collected about 6.7 trillion won in tax revenue from tobacco sales, according to ministry data.

By Chung Joo-won (joowonc@heraldcorp.com)