Fiscal Relief from Synthetic Nicotine Taxation... 1.3 Trillion Won to Be Collected in Individual Consumption Tax Over 5 Years

Shortfall in Dividend Income Tax Offset by Individual Consumption Tax
Annual Average of 257.7 Billion Won in Taxes to Be Imposed Starting Next Year

With the imposition of taxes on synthetic nicotine cigarettes, it is expected that nearly 1.3 trillion won will be collected in individual consumption taxes over the next five years. Although tax revenues such as dividend income tax fell short of initial targets during the National Assembly's tax law review, increases in other revenues such as the individual consumption tax have enabled the government to make up for its targeted tax revenue goals.

According to the report "Results and Key Points of the 2025 Amended Tax Law Review" released by the National Assembly Budget Office on December 19, an amendment to the Tobacco Business Act will impose an additional individual consumption tax on synthetic nicotine cigarettes starting next year. Beginning with 95 billion won in 2026, a total of 1.2885 trillion won in taxes is expected to be collected over the five-year period until 2030. This amounts to an annual average of 257.7 billion won in taxes over the next five years.

Previously, following discussions in the National Assembly, the definition of tobacco was expanded from products using tobacco leaves as raw material to those using both tobacco and nicotine. As a result, cigarettes made from synthetic nicotine will also be subject to the individual consumption tax. However, to reduce the initial burden on small businesses involved in the manufacture and distribution of synthetic nicotine, an exception has been made to reduce the individual consumption tax for two years.

Electronic cigarette. Photo by Getty Images Bank

Thanks to the individual consumption tax, the government has been able to maintain its original tax revenue projections. According to the Budget Office's analysis, if the tax law amendment submitted by the government to the National Assembly had been passed as is, tax revenues would have increased by 3.7804 trillion won over the next five years. However, after the National Assembly's review, tax revenues decreased by 903.1 billion won and 400 billion won over five years due to the introduction of separate taxation on dividend income for individual shareholders of high-dividend companies and the establishment of a special deduction for contributions to the Korea Development Bank's Advanced Strategic Industry Fund (corporate tax), respectively. The decrease in tax revenue is expected to be offset by the individual consumption tax on synthetic nicotine. Thanks to the individual consumption tax on synthetic nicotine and the increase in the additional tax rate on the issuance and receipt of false tax invoices (570 billion won over five years, value-added tax), the government is now able to come close to achieving its originally targeted tax revenue goals.

Meanwhile, the Budget Office projected that the amended tax law will increase tax revenues by 3.75104 trillion won over the next five years. This is 293.6 billion won less than the government's original proposal.