Tax revenue from cigarette sales in Korea is expected to reach more than 12.68 trillion won ($10.72 billion) next year, nearly double the increase from 2014, according to a report shown Monday by the independent Korea Federation of Taxpayers.
The Korea Federation of Taxpayers said in its report that the increase is attributable mainly to the sharp tax hike early this year but little reduction in sales volume. The tobacco tax hike was introduced as part of the government’s strategy to reduce the smoking rate in Korea.
The government raised a total of 6.74 trillion won in tobacco tax revenue in 2014 before the tax hike took effect on Jan. 1. This year, it is estimated that the government will collect 11.17 trillion won, up 4.42 trillion won from the previous year. The government had predicted that the tax revenue would increase only by about 2.78 trillion won this and next year, respectively, as sales were expected to drop due to the price hike.
Once the new cigarette pricing went into effect, the price of cigarettes increased to 4,500 won, up 80 percent from the previous 2,500 won. From January to June, the government collected approximately 4.3 trillion won in tax revenue from tobacco sales, up 1.2 trillion won from the year before. During the same period, cigarette sales decreased by 28.3 percent due to the tobacco tax hike.
Although tobacco sales plunged early this year as a result of the sharp price hike, sales have begun to show signs of recovery.
Several popular brands of cigarettes are in short supply in Nepal’s Kathmandu Valley due to hoarding and black-marketing by some wholesalers, according to Republica. Some wholesalers have begun to hoard cigarettes following media reports that the government was planning to hike excise duty on cigarettes through the budget for fiscal year 2015-2016. In addition to reducing supply, some wholesalers are also accused of raising prices in an arbitrary manner.
“It is very difficult to get [cigarettes] as per our demand,” retailer Ram Kumar Rai told Republica. “Not only are wholesalers reducing supply, they are also overcharging us for cigarettes.”
Rai said he was charged npr50 ($0.44) more for a box of Surya cigarettes containing 10 packets. “The wholesaler asked me to pay npr1,450 for a box of cigarettes which cost only npr1,400,” he said.
Retailer Madhav Timalsina, of Sundhara, paid npr1,500 for the same pack. “Wholesalers have been overcharging us, citing short supply,” he told Republica. “We are not getting cigarettes as per our demand, as wholesalers are hoarding them anticipating duty hike in upcoming budget.”
Meanwhile, manufacturers maintain that they have not reduced the supply of cigarettes.
“We have increased supply by around 10 percent recently,” Ravi KC, vice president of Surya Nepal, told Republica. “Our authorized dealers and cycle-boys have not reported us about shortage and hoarding of cigarettes.”
Department of Commerce and Supply Management officials have vowed to intensify market monitoring and to take action against anyone found guilty of hoarding cigarettes or participating in black-marketing.
As much as 15 percent of the workforce at tobacco-related companies in East Java, Indonesia—or more than 23,000 workers—are at risk of being laid off this year, according to a story in the The Jakarta Post.
Based on 2014 data, the number of people working in East Java’s tobacco and tobacco products industrial (IHT) sector was 159,117, according to East Java Chamber of Commerce and Industry (Kadin) vice chairman Dedi Suhajadi. The sector’s workforce also decreased by 21,300 workers in 2014 from 180,466 workers in 2013.
“Many IHT entrepreneurs are affected,” Dedi said. “This is attributable to the annual increase in tobacco tax, government regulations and groups that interfere with the concentration of IHT entrepreneurs in meeting tax obligations.”
The government raised the IHT tax target to IDR141.7 trillion in 2015 from IDR111.21 trillion in 2014. Over the past five years, the average increase in IHT tax was 16.09 percent.
Data from the East Java Manpower and Transmigration Office indicated that 790 IHT companies were still operating in 2014, however, only about 200 were producing on a regular basis. In 2011, there were about 1,100 cigarette factories, according to Dedi.
“Those that have gone out of business are small- and medium-scale factories. Only the large-scale companies are surviving,” said Dedi.
Between 2009 and 2013, approximately 4,900 cigarette factories closed their doors.
Philip Morris International Korea (PMIK) will increase its cigarette exports to an expected 20 billion sticks this year after securing larger markets in Japan and Australia.
The company will expand its export of cigarettes manufactured in its factory in Yangsan, South Gyeongsang Province, in an effort to make up for domestic losses caused by a tobacco tax hike that went into effect on Jan. 1. The bill—which increased tobacco prices to won4,500 per pack from the average won2,500 per pack—resulted in significant decreases in sales for tobacco makers operating in the country. PMIK’s sales dropped by approximately 18 percent in the first quarter of 2015 compared to the first quarter of 2014.
In 2012, the company invested approximately won200 billion into the Yangsan factory to expand its packaging facilities and add raw material processing facilities. Today, the factory has the ability to produce 40 billion cigarettes per year, double its prior manufacturing capacity.
“Since 2012, our exports grew more than 10 times, thanks to the increased capacity in Yangsan factory, as well as the growing quality,” said Mikhail Prokopchuk, PMIK’s director of operations.
Exports from the Yangsan factory to Japan, Australia, Singapore, Taiwan, Hong Kong and Macua have increased dramatically since manufacturing capabilities were expanded, with export volumes increasing from 900 million cigarettes in 2012 to 4.5 billion cigarettes in 2014.
A study examining the vapor released from Blu Ecigs’ and Skycig’s e-cigarettes in comparison to the smoke emitted by Philip Morris USA’s Marlboro Gold and Imperial Tobacco’s Lambert & Butler cigarettes found that levels of harmful and potentially harmful constituents (HPHCs) in cigarette smoke were 1,500 times higher than the levels found in e-cigarette vapor.
The study—titled “Comparison of select analytes in aerosol from e-cigarettes with smoke from conventional cigarettes and with ambient air”—was published in the December 2014 issue of Regulatory Toxicology and Pharmacology. According to proponents of vapor product use, the study lends credence to the belief that, although the long-term effects of inhaling the propylene glycol and glycerin found in e-cigarette vapor are not yet known, such products provide a safer alternative to smoking combustible cigarettes.
According to the study, the e-cigarettes tested contained and delivered mostly glycerin and/or propylene glycol and water, and emitted an aerosol nicotine content that was 85 percent lower than the cigarette smoke nicotine content levels. The study also found the levels of HPHCs to be consistent with the air blanks—at <2 μg/puff—and no significant contribution of tested HPHC classes was found for the e-cigarettes tested. The e-cigarettes and combustible cigarettes in the study were tested on a smoking machine to compare the amount of nicotine delivery and the relative yields of chemical constituents.
The price of a pack of cigarettes will rise by about $0.07 next year in Australia, according to a story in the Herald Sun.
The increase will see the government face a potential re-election tussle with tobacco companies and retailers, who are still smarting over plain packaging laws.
Cigarettes were the only sin tax targeted by Treasurer Wayne Swan’s big-cutting budget. Last year’s budget saw an increase on taxes on beer and cut the number of duty-free cigarettes Australians could bring home after travelling overseas.
The duty free cuts last year were set to raise $175 million by 2015.
A pack of 25 cigarettes will be $0.07 more expensive from the first half of 2014, after a change in indexation that sees tobacco excise keep pace with salary rises. Budget papers did not reveal how much this would raise.