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Cigarette tax increased to cut smoking
By Wang Xu, Tan Yingzi and Wang Zhuoqiong (China Daily)
Updated: 2009-06-22 07:47

The government has raised consumption tax on cigarettes by between 6 and 11 percent to curb smoking and add revenue to State coffers.

The tax hike took effect on May 1 but was made public over the weekend along with a levy of 5 percent imposed on cigarette wholesalers, according to a statement by the State Administration of Taxation.

The tax has not yet been passed on to smokers and it is unclear how much of the increase tobacco companies, wholesalers and retailers will absorb.

"The move will not only increase government revenue but also save the lives of millions," Li Ling,a professor at the National School of Development at Peking University, told Xinhua News Agency.

The Chinese Association of Tobacco Control said in a statement yesterday: "Efforts to increase the tobacco tax and lift tobacco prices have proven the most effective in reducing smoking among smokers of all income levels. It will prevent young people from smoking and encourage more smokers to quit the harmful habit."

The country has more than 350 million smokers, about a third of the population. Each year, more than 1 million people die from smoking-related illnesses.

Experts estimate that the annual death toll could rise to 2 million by 2025 and 3 million by 2050 as the effects of smoking start to appear on the increasing number of today's teenage smokers.

The nation is the world's largest cigarette market, with annual sales of two trillion cigarettes. But the government has been stepping up efforts to curb tobacco consumption over the years, especially after it joined the World Health Organization (WHO) Framework Convention on Tobacco Control in 2005.

Experts say the nation's taxation on tobacco products, about 40 percent on average, is well below that in most other countries, which is around 60 percent.

Even if the entire tax increase is borne by smokers, the price of an average cigarette packet on the mainland would be less than a third than in developed economies.

"We haven't raised prices yet but will do so soon," said Li Lin, a clerk at a cigarette shop in Beijing's Chaoyang district.

Li said the tax increase would further dent business, adding sales have dropped substantially this year due to the financial crisis.

But Li, who smokes two packs everyday, said increased prices would have no effect on him. "I can give up meals but not cigarettes," he said, puffing out a cloud of smoke.

The tax increase will add about 30 billion yuan of extra revenue for the central government, an unnamed official was quoted by Reuters as saying. The government has budgeted a record deficit for 2009 to fund its 4 trillion yuan ($586 billion) stimulus package.

Government revenue declined 6.7 percent in the first five months this year, compared with the same period a year earlier, even as spending surged 27.8 percent in the same period.

The government expects revenues to grow 8 percent to 6.6 trillion yuan in 2009, according to the budget announced in March.

"The main purpose of this policy is to increase the tax revenue from cigarettes, not to control smoking in the country," Mao Zhengzhong, professor at the College of Public Health of Sichuan University, told China Daily yesterday.

He said cigarette makers may pass on all, or part of, the tax to retailers, or absorb it themselves.

Mao urged the government to increase the tax to 65 percent of the retail price to curb smoking, adding: "There is still a lot of room to raise the tax."

(China Daily 06/22/2009 page1)