Dual goal unlikely to be fulfilled
The increase in tobacco tax can arguably serve two purposes: reduce the number of smokers and raise State revenue. But a closer look at the problem would show it might achieve one of the purposes, but not both. It seems a tax hike increases revenue but does not reduce smoking, says an article on www.dahe.cn. Excerpt:
The two purposes of the tobacco tax increase are related but cannot be achieved simultaneously. If a tax increase reduces the sale of cigarettes greatly, the government stands to lose valuable revenue. But if the government gets extra revenue, it indicates cigarette consumption has not shrunk considerably. Hence, the tax increase cannot fulfill both aims.
In reality, the tax increase has raised revenue but not reduced smoking. The reason is that cigarette prices have not soared despite the tax increase. It seems that cigarette makers and retailers have yet to pass on the tax to consumers.
Why have cigarette prices remained stable? One of the reasons for may be that the excessive cigarette inventory before May hasn't been sold out. Besides, some regions have yet to impose higher taxes because local authorities are not yet ready for that.
Since cigarette prices haven't risen, the purpose of curbing smoking has not been achieved. Reducing smoking is much more important compared with raising revenue. In order to realize that aim, should we increase the tax further?
Despite the increase in tobacco tax, its rate is still about 10 percent lower than the international average. Hence, there is still space for further tax increase.
Another problem is that reduce smoking is not very price elastic. So officials should be banned from using public money to buy cigarettes because they consume a large percentage of expensive cigarettes.
(China Daily 06/24/2009 page9)
