The South Korean National Assembly recently passed a bill that includes 79 items . One of the most significant amendments reclassifies liquid e-cigarettes using synthetic nicotine as "tobacco products" under the Tobacco Business Act. This move closes a long-criticized regulatory loophole and paves the way for substantial increases in tax revenue.
Key points of the new regulations for e-cigarettes
Synthetic nicotine liquids have been reclassified as tobacco : Previously, products using laboratory-synthesized nicotine were not legally classified as "tobacco products," thus circumventing specific taxes and regulations targeting tobacco. After the amendment is implemented, e-liquids containing synthetic nicotine will be included in the tobacco category, subject to taxation and stricter regulation.
Market Impact : It is estimated that approximately 95% of the liquid e-cigarette market in South Korea uses synthetic nicotine. The new regulations effectively bring the vast majority of e-cigarette liquids under the tobacco regulatory system.
Fiscal effect : The National Assembly Budget Office predicts that the measure will generate approximately 930.1 billion won in additional tax revenue after it takes effect.
Policy trajectory : Legislative attempts since 2016 have been repeatedly hampered by industry resistance. This passage marks a decisive shift in policy, aiming to achieve regulatory equality between synthetic nicotine and tobacco-derived nicotine products.
Significance to the e-cigarette industry
Pricing and Demand : New consumption tax burdens typically lead to higher retail prices. A short-term price restructuring is expected across the entire liquid e-cigarette category, potentially triggering changes in demand elasticity—particularly impacting price-sensitive adult consumers.
Compliance and Labelling : Manufacturers and importers must comply with regulations regarding the registration, labeling, reporting, and distribution of tobacco products. Distributors and retailers should be prepared to apply for tobacco category licenses and undergo audits.
Product strategy : Brands that position themselves as "synthetic nicotine" will lose their tax advantage. If a product contains nicotine, even if the formula is adjusted, it cannot avoid being classified as a tobacco product; nicotine-free products may regain market attention, but they will still face specific regulatory requirements.
Competitive Landscape : The new regulations will balance the competitive landscape between synthetic nicotine and tobacco-derived nicotine products. Depending on the final tax burden allocation and consumer switching behavior, heated tobacco products and closed-system cartridges may regain market share.
Key points for follow-up attention from e-cigarette stakeholders
1. Implementation details and timetable: Pay attention to enforcement notices that clearly define the tax rate per milliliter, product classification standards, and licensing and labeling deadlines. Transitional provisions are crucial for the disposal of existing inventory.
2. Tax Structure Details: How South Korea sets consumption taxes (ad valorem, specific, or mixed tax system) based on nicotine concentration gradients will determine the product's economic viability and taste/nicotine concentration strategy.
3. Cross-category regulatory consistency: Regulatory coordination with heated tobacco products and traditional cigarettes will affect consumer switching paths and the risk of illicit trade.
4. Legal challenges and lobbying: The industry may bring lawsuits regarding definitions, tax bases or administrative burdens, or seek to refine the terms in the enforcement order.
5. Consumer response: Monitor the shift in consumption towards disposable products, homemade e-liquids, or nicotine-free e-liquids, as well as the potential growth trend of parallel imports.
Key conclusions
South Korea's reclassification of synthetic nicotine e-liquids as tobacco products represents a structural policy shift, bringing almost all e-cigarette categories under tobacco taxation and regulation. For brands and retailers, the immediate priority is ensuring compliance readiness and quickly adjusting pricing, labeling, and supply chains. For policymakers, this move promises substantial revenue and regulatory clarity—the real test will be revealed in the coming quarters through consumer behavior, market adaptation, and enforcement effectiveness.
来源：烟草在线编译
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