[Column] Is the 'Joeakse' an Easy Tax Increase?

[Sejong=Asia Economy Reporter Kim Hyunjung] The ruling party is igniting the debate on tax increases through raising tobacco taxes, so-called 'sin taxes.' As voices calling for tax hikes emerge amid increased government fiscal spending due to the COVID-19 pandemic, the party is naturally setting the stage for discussion.

Recently, Kang Byung-won, a member of the Democratic Party of Korea, along with nine other party members, proposed an amendment to the Individual Consumption Tax Act to raise the tax rate on tobacco from 2022 onward, linked to the previous year's inflation rate. The rationale is that if prices gradually rise, the real price of tobacco falls, reducing the burden of tobacco consumption and ultimately increasing smoking rates. In other words, the proposal is to 'naturally' and 'continuously' raise tobacco taxes.

This is not the first time such discussions have taken place. In August, the Korean Local Tax Association held an academic conference presenting this idea, and in October, the Korean Government Accounting Association held a forum on introducing an inflation-linked specific tax system. It appears that academic societies are laying the groundwork, and the ruling party is taking this up for full-fledged public debate. During the Park Geun-hye administration in 2014, there was also a precedent where then-Minister of Health and Welfare Moon Hyung-pyo publicly pushed for an inflation-linked system alongside tobacco price hikes, but it was rejected in the plenary session.

Not only tobacco but also alcohol, gambling, and horse racing?luxury consumptions considered 'socially negative'?are subject to 'sin taxes,' which are regarded as taxes with relatively low resistance. This is because there is a certain level of social consensus that undesirable consumption should be curbed by imposing high tax rates. Especially tobacco is directly linked to public health, making it easier to justify. The ruling party stated regarding the reason for the proposed amendment, "Setting higher tax rates on tobacco, which poses greater harm, is a more rational method to achieve reduced smoking rates and promote public health."

However, if the government, which has not uttered a word about tax increases, claims it will easily secure tax revenue through sin taxes, it appears somewhat unseemly. Even within the government, voices cautioning that raising taxes on tobacco?a representative low-income consumer good along with soju?should be handled more carefully are emerging.

The current government is spending more money than any previous administration. This is inevitable to confront the unprecedented adversity of the COVID-19 pandemic and to provide relief to socially vulnerable groups and small business owners. Is the call to thoroughly review the tax structure and discuss timely and sustainable directions an excessive idealism?