Abstract

The liquor tax was specific taxation until 1967, but it was converted to ad valorem taxation in 1968. At present, alcoholic beverages are taxed as ad valorem taxation. This study analyzed the argument against the conversion of liquor taxation to specific taxation in order to examine the possibility of the conversion of the liquor tax system from ad valorem taxation to specific taxation. The results of the study are as follows. First, the argument that the transition to specific taxation weakens the competitiveness of the soju industry may be overestimating the transition effect. This is because the demand elasticity of soju price is inelastic compared to other alcoholic beverages, and Japan, which has already switched to specific taxation, appears to have no significant impact on the soju industry. Second, it is hard to say that all the people is opposed to rising popular alcoholic beverage prices. Price increases may not be a burden for the reasonable consumers. Third, although specific taxation has the regressiveness problem, this is an inherent problem in the indirect taxation, and there is some inevitable aspect considering the external diseconomy correction effect which is the main purpose of the sin tax. Fourth, it may not be appropriate to claim that it is difficult to secure stable financial income. This is because the tax proportion of liquor tax in the ad valorem tax system has been steadily decreasing. Additional reasons to switch to a specific tax are as follows；At present, Korea’s alcohol consumption level is significantly higher than other countries, so external economy correction is more important.；It was attempted to convert the tobacco consumption tax, which is a kind of sin tax, into a specific tax, but the ad valorem tax was maintained because of the concern about the mass consumption of cheap cigarettes.；The transition to specific taxation promotes alignment with OECD countries adopting specific taxation. As a result of the analysis, it seems that there is no big problem switching to specific taxation. This study implies that it has proposed a new direction of liquor tax policy in the future by examining the possibility of conversion to specific taxation rather than accepting the argument against the conversion to specific taxation which was alleged in the past.

Keywords

• liquor tax
• sin tax
• ad valorem tax
• specific tax
• external diseconomy

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