Legal Battle Unfolds as South Korean Provinces Defend Taxation on Liquid Electronic Cigarettes

South Korea’s Jeju Special Self-Governing Province has recently collaborated with 164 local governments to designate a law firm to address a lawsuit filed by some liquid electronic cigarette manufacturers seeking the cancellation of cigarette tax collection in the Seoul Administrative Court.

According to Jeju Island, this lawsuit originated in January of this year when local governments nationwide imposed unpaid cigarette taxes on 17 liquid electronic cigarette manufacturers.

It is reported that the unpaid taxes by liquid electronic cigarette manufacturers from 2016 to 2020 amounted to 110 billion Korean won. Jeju Island alone collected 3.3 billion Korean won.

Cigarette taxes consist of tobacco consumption tax, local education tax, and personal consumption tax, with tobacco consumption tax and local education tax being local taxes that contribute to local government finances.

According to tobacco industry regulations, tobacco is typically defined as being made from the ‘leaves’ of the tobacco plant rather than extracting nicotine materials from the main parts of tobacco such as stems or roots. With the implementation of the revised local tax law in 2021, tobacco oil made from stems or roots is also subject to taxation.

However, with the implementation of the newly revised local tax law in 2021, tobacco made from stems and roots is now included in the taxable scope.

Local governments across the country, including Jeju Province, are now reconsidering the reasons for imposing taxes on liquid electronic cigarette manufacturers from 2016 to 2020. This comes after the results of audits by the Audit Office and investigations by the Korea Customs Service found that these companies’ products used tobacco leaves rather than other untaxed parts.

Among the 17 companies that received tobacco tax notices from Jeju Province and other regions, nine companies have filed administrative lawsuits opposing this new local tax law, with eight of them proceeding with litigation. It is reported that the total amount of lawsuits filed by these companies reaches up to 43 billion Korean won. They do not acknowledge the results of the Audit Office’s audit and argue that the taxation is unreasonable.

The remaining companies either filed lawsuits or did not file administrative lawsuits and have yet to pay the taxes.