SOUTH KOREA
After a special consumption tax that targets cigarettes manufactured with “leaves” was introduced at the beginning of the year, the amount of taxable imports of tobacco leaf extracts decreased while non-taxable imports, such as stem-and-root extraction surged.
Analysts said that the government needs to consider including “stems” or “roots” of tobacco leaves as a raw material to prevent false reports and tax evasion.
According to a report from the Strategy and Finance Committee Wednesday, imports of nicotine solutions extracted from stems and roots increased from 5 tons in 2016 to 90 tons in 2017 and 175 tons in 2018. Meanwhile, imports of nicotine solutions extracted from leaves fell from 17 tons in 2016 to seven tons in 2017 and six tons in 2018.
This change came about after the Ministry of Strategy and Finance’s ruling in 2016 that nicotine extracted from stems and roots is not classified as a cigarette under the tobacco business law.
In a related development, the committee said in a report that importers often report nicotine solutions (raw materials from tobacco leaves) as being derived from stems and roots in order to avoid the burden of special consumption taxes. Extracting nicotine from stems or roots is not profitable. As such, extracting nicotine from leaves is the preferred manufacturing process.
If the nicotine solutions imported and reported as extracted from stems and roots since 2016 were actually based on leaves, the customs office estimated that tax revenue omissions for the special consumption tax and tobacco consumption tax would total 100 billion won (US$82.9 million).