South Korean media exposes tax loophole in electronic cigarettes: 35 times difference in tax rate between liquid and solid nicotine

South Korean media exposes tax loophole in electronic cigarettes: 35 times difference in tax rate between liquid and solid nicotine

According to South Korean media reports, there are loopholes in the taxation of electronic cigarettes, with a 35 fold difference in tax rates between solid and liquid types, which may distort market distribution. At present, the synthetic nicotine tax bill is being discussed, but solid nicotine products may become a new way to evade taxes.

According to KBS News on November 14th, due to the different forms of nicotine, the tax rate difference for electronic cigarettes may be as high as 35 times, leading to unreasonable taxation.

KBS reporters found that various disposable electronic cigarette products can be seen in convenience stores, with similar appearances but different nicotine forms inside. There is a type of liquid nicotine, in which nicotine containing e-liquid is absorbed into cotton. Another product is solid nicotine, which contains nicotine particles designed to combine with nicotine free e-liquid during smoking.

The leader of the e-cigarette industry pointed out that "this solid nicotine cannot be used alone. This is the first time that solid nicotine has been combined with e-cigarettes

Both products can provide nicotine equivalent to two packs of regular cigarettes, with a e-liquid capacity of 2 milliliters, but their tax status is different. Solid state electronic cigarettes are only taxed based on a solid weight of 0.4 grams, while liquid electronic cigarettes are taxed based on a whole bottle of 2 milliliters of e-liquid.

According to the tobacco consumption tax, ordinary cigarettes are required to pay 1007 Korean won (0.7 US dollars) per pack. The same amount of liquid electronic cigarettes costs 628 Korean won (0.45 US dollars), while heated non combustible products cost about 641 Korean won (0.46 US dollars), but the solid-state version is only about 17 Korean won (0.01 US dollars). Even when comparing within electronic cigarettes, the tax rate difference can reach 35 times. KBS claims that this may distort market distribution.

At present, only natural nicotine is subject to tobacco related taxes, while a bill to tax synthetic nicotine, which accounts for the majority of the e-cigarette market, is currently under discussion in Congress. The media stated that if solid-state electronic cigarettes continue to be favored by consumers, even if synthetic nicotine is taxed, it may still evade taxes through solid-state classification.

Lee Seong kyu, Director of the Korea Tobacco Control Research and Education Center, stated that,

Due to the unpredictability of tobacco companies' strategies, this process is bound to be repeated. Companies will seek other paths within the market to avoid it