Illegal circulation of tax-free cigarettes surges in S. Korea

(Photo Credit: Peter Franz)

By Park Si-soo

SOUTH KOREA — The illegal circulation of tax-free cigarettes on the domestic market has surged since the announcement of a government plan to raise prices.

The Korea Customs Service (KCS) said Tuesday that it confiscated a record amount of illegally circulated tax-free cigarettes worth 66.4 billion won ($61 million) in the first half of the year, more than the 43.6 billion won confiscated throughout 2013, according to the KCS.

Cigarettes produced for the military and exports are exempt from taxation, but those products are increasingly being funneled into the domestic market as the government moves to revise a law to increase the tobacco tax by 2,000 won per pack. A bill is pending in the National Assembly, with the ruling Saenuri Party throwing its weight behind it.

Another contributor to the sharp increase is a supply limit the government has tentatively put on cigarette suppliers to prevent smokers from hoarding cigarettes ahead of the tax increase.

Under the limit introduced on the heels of the legislation announcement, tobacco companies were allowed to increase their monthly supplies ㅡ despite surging demand for cigarettes ㅡ only by 4 percent, compared with their average supply volume between January and August.

The KCS said 359 million packs of cigarettes were supplied per month on average during the first eight months, which means that, under the supply limit, tobacco-makers can supply up to 373 million packs of cigarettes a month to the market.

“We have tightened monitoring on the circulation of tax-free cigarettes,” said Kim Nak-hoe, KCS commissioner, during an on-site inspection of two conventional markets in Seoul that are believed to be one of the major hotbeds of tax-free cigarette smuggling. “I will not tolerate those smuggling tax-free cigarettes.”

He said the amount of taxes uncollected since 2011 due to the illegal circulation is estimated at more than 73 billion won.

Last week, three cigarette distributors were given jail sentences for illegally selling 29.33 million packs of tax-free cigarettes for export on the domestic market from December 2010 through June 2013. They were also fined 70 billion won.

“The accused disrupted the market by illegally circulating tax-free cigarettes for export on the domestic market,” said Judge Kim Sang-dong of the Incheon District Court in a ruling statement. “They manipulated documents to buy tax-free cigarettes for export and then sold them to local distributors, harvesting massive illegal gains.”

Last month, the Incheon Prosecutors’ Office busted a group suspected of having put 5.9 million packs of tax-free cigarettes manufactured for U.S. troops in Korea onto the local market. A total of 23 people were indicted in connection with the case.

The KCS chief said the government will keep the market in check until it has stabilized with new tax policy.

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3 Comments

1. Edward

   November 12, 2014 at 8:03 AM

   Koreans hate paying taxes. I mean, everyone hates playing taxes, but Koreans are on an extreme here.

   Reply

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