Government collects W125b tax from growing HNB shipments

The government has collected 125 billion won ($114 million) of new tax revenue from the rapidly growing shipments of heat-not-burn cigarette sticks, the finance ministry said Sunday.

According to Ministry of Strategy and Finance, shipments of HNB cigarettes reached 71.9 million packs as of October this year, in seven months since the product has reached the market in April. A combined 1,739 won of taxes were imposed per HNB cigarette pack, including tobacco sales tax and value added tax.

The Korean government is expected to collect more taxes, as the National Assembly passed a bill on raising individual consumption tax on HNB tobacco products earlier this month. With the tax increase, tobacco makers are currently levied 2,142 won per HNB cigarette pack. But they could face more taxes, as bills on raising other taxes up to 90 percent of traditional tobacco products remain pending at the parliament. If the lawmakers approve the bills, tax per HNB packs could go up to 2,986 won, creating new tax revenue for the government, estimated at 740 billion won a year.

In response, foreign tobacco makers, Phillip Morris International and British American Tobacco have said that they are not going to raise the retail prices for now. But they might consider price hikes if the National Assembly decides to increase other taxes as well.

The tobacco makers have been enjoying growing popularity of HNB cigarettes.

Phillip Morris International shipped out 100,000 packs on the first month it introduced its HNB product IQOS in April.

Shipments of HNB cigarettes surged to 9.6 million packs in July and 17.4 million packs in August, when British American Tobacco rolled out Glo.

Shipments of HNB cigarettes in November are forecast to increase as well, with KT&G, a local tobacco maker, joining the new market segment with its Lil Monday.

Meanwhile, shipments of conventional tobacco products came to 2.91 billion packs during the period between January and October, down by 146 million packs on-year from the same period last year, 3.06 billion packs, the data also showed.

By Shim Woo-hyun (ws@heraldcorp.com)