The government will convert the portion of the tobacco consumption tax that goes to the local education tax, which is set to sunset at the end of this year, into a "local housing welfare tax" to be used for housing supply. It plans to collect 1.5 trillion won a year through the local housing welfare tax and create a "local housing fund" to expand the supply of local public dwellings.
The Ministry of the Interior and Safety released on the 26th a plan to convert the tobacco local education tax as part of the 2026 local government tax reform plan.
The tobacco consumption tax is a local government tax levied on tobacco consumption; the portion of the local education tax tied to the tobacco consumption tax is an earmarked tax collected on top of it. The current Local Tax Act requires imposing 43.99% of the tobacco consumption tax amount as a local education tax. The annual size of the tobacco consumption tax is about 3.5 trillion won. Of this, 1.5 trillion to 1.6 trillion won goes to the local education tax and into the metropolitan and provincial special accounts for education expenses.
Earlier, when amending the Local Tax Act in 2024, the government said it would extend for two years the portion of the local education tax tied to the tobacco consumption tax on the premise of a permanent end in 2027. As noticed two years ago, the tobacco local education tax will sunset as scheduled, and the related revenue source will be used to create a "local basic social housing fund" to be injected into local dwellings supply.
Minister Yoon Ho-jung of the Ministry of the Interior and Safety (MOIS) said at a full meeting of the Public Administration and Security Committee at the National Assembly on the 24th, "The tax base of the tobacco consumption tax is largely concentrated in major cities," adding, "We are exploring ways to convert the local education tax into a local housing welfare tax and use it for housing supply."
However, metropolitan and provincial offices of education are pushing back. Jung Keun-sik, the Seoul superintendent of education and chair of the association of superintendents, said at an emergency meeting on earmarked tax on the 19th, "Multiple factors are overlapping to create fiscal instability, including the scheduled sunset of the portion of the local education tax tied to the tobacco consumption tax." The point is that, along with the government's overhaul of the local educational finance grant-in-aid (earmarked tax), the sunset of the portion tied to the tobacco consumption tax has destabilized local educational finance.
Previously, the Ministry of Planning and Budget said it would scrap the current grant-in-aid linkage system that automatically allocates 20.79% of national tax and instead calculate the amount by reflecting the three-year average economic growth rate and the change in the school-age population.