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| PMI's IQOS (top) and BAT's glo (bottom) |
Multinational tobacco companies selling heat-not-burn (HNB) e-cigarettes are set to raise prices as the National Assembly moves closer to hiking taxes on this new type of cigarette.
When materialized, this would adversely affect millions of smokers who have switched from standard cigarettes over the past few months to those that its makers say produces 90 percent less harmful chemicals.
Philip Morris International (PMI) Korea, headed by CEO Chong Il-woo, and British American Tobacco (BAT) Korea, headed by CEO Matthieu Juery, have been refraining from publically discussing what they call the "inevitable" price hike.
But they say they would be left with no other choice but to charge consumers much more than 5,000 won ($4.46) per pack, if lawmakers put their plans into practice.
In May, PMI Korea began selling the IQOS, an electronic device designed to heat HEETs, while BAT Korea introduced glo and its tobacco Neostiks, in August. Both HEETs and Neostiks are priced at 4,300 won for a pack of 20.
On Oct. 20, the Assembly's Strategy and Finance Subcommittee passed a revised bill to increase the excise tax levied on a pack of 20 HNB sticks to 529 won from the current 126 won. If lawmakers pass the bill during the upcoming plenary session in early November, the tax increase will go into effect.
The 529 won is equivalent to 89 percent of the 594 won excise tax that consumers pay when purchasing a pack of standard cigarettes.
Lawmakers are now moving to raise other taxes levied on HNB cigarettes, such as a consumption tax, a health promotion fee and a local education tax, to the degree that they equal 89 percent of those imposed on conventional cigarettes.
"Revised bills concerning HNB cigarettes are designed to increase all types of taxes," an official at the Ministry of Strategy and Finance said. "Other subcommittees were waiting for the Strategy and Finance Subcommittee to pass the excise tax revision. They will soon take necessary steps to increase the consumption tax, health promotion fee and local education tax."
The official expected the Assembly to pass the excise tax revision at a plenary session Nov. 9.
"We are trying to have revised bills go through the Assembly as quickly as possible so we can remove market uncertainties surrounding HNB cigarettes. So we need to complete the revision process as soon as possible," he said.
The Health and Welfare Subcommittee will soon deal with a revised bill increasing the health promotion fee imposed on a pack of 20 HNB sticks to 750 won from the current 438 won.
The Security and Public Administration Subcommittee is also expected to pass the revision to hike the HNB cigarette consumption tax to 897 won from the current 528 won, and the local education tax to 395 won from 232 won.
PMI Korea and BAT Korea have been saying HNB cigarettes are less harmful than conventional ones, arguing it is not fair to impose the same amount of taxes on both.
But they appear to be accepting the controversial tax hike as a done deal and are scrambling to deal with its fallout.
"We will likely have to raise the price of (HNB cigarettes), given a sharp increase in taxes," a PMI Korea official said. "We first need to estimate the extent of the price hike. But we still have time because the National Assembly has yet to approve any revisions."
A BAT Korea spokesman also said the price hike is inevitable.
"We have begun discussing ways of dealing with the tax increase. In addition to the excise tax, if lawmakers decide to raise other taxes, we will have no choice but to charge consumers more."
