South Korea

Background: The Republic of South Korea was the first country to introduce an excise tax on electronic cigarettes. In January 2011, the Enforcement Decree of the Local Tax Act was amended by extending the Tobacco Consumption Tax to “electronic tobacco”. This new class of tobacco product is defined as “Tobacco made to give the same effect to smoking, by inhaling solution that contains nicotine through one’s respiratory system, by using an electronic device.”

The initial rate of tax was 400 won per milliliter of nicotine solution.

Earmarked taxes: Earmarked taxes are quite common in South Korea. These are a form of indirect tax in which the revenue generated is allocated to predetermined programs or activities rather than to the General Fund and spent according to legislative priorities established in the annual budget. The National Health Promotion Fund tax is one such example. Revenue collected from this tax finances projects for supporting healthy lifestyles, nutrition management, anti-smoking education and the like.

In 2015 the Government introduced an Individual Consumption Tax on Tobacco Products. For “electronic tobacco” the tax was set at KRW 370 per ml of nicotine containing liquid.

Another earmarked tax levied on tobacco products and e-cigarettes in South Korea is the Local Education Tax. For e-cigarettes this tax has the same specific structure and taxable base as the other taxes applied. The Local Education Tax was increased in 2015 from KRW 200 to KRW 276.2572 per ml. Proceeds collected from this tax are used to improve the quality of local education.

The Green Fund tax was created by the Enforcement Decree of the Act on the Promotion of Saving and Recycling of Resources. For electronic cigarettes the tax is set at 24.4 won per 20 cartridges, the same rate per 20 conventional cigarettes.