Expert:Tax hike has little effect on tobacco use

14:19, January 18, 2010      

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The tobacco industry's profits and taxes levied by the government in 2009 reached 513.11 billion yuan, 55.93 billion yuan more than 2008, or rising 12.2 percent, the State Tobacco Monopoly Bureau spokesman Zhang Xiulian said on Thursday in Beijing.

Of the amount, 416.3 billion yuan belongs to taxes, rising 86.4 billion yuan over a year ago, or 26.2 percent on 2008, Zhang said.

However, although the hike of tobacco taxation by the government has increase its financial coffers, it has little effect in controlling and reducing public tobacco use.

"The adjustment did not result in ‘tax price linkage' effect. It has little impact on tobacco sales and thus has little effect in tobacco control," said Hu Angang, professor of the School of Public Policy and Management (SPPM) of Tsinghua University and director of the Center for China Studies of Tsinghua University.

China's Ministry of Finance and State Administration of Taxation jointly issued the "Notice of adjusting cigarettes allocation price' in May 2009. The decree ruled that the tax rate of Grade A cigarettes would be raised from 45 percent to 56 percent, and Grade B cigarettes from 30 percent to 36 percent. In addition, it has introduced ad valorem tax at the rate of 5 percent in the wholesale market.

According to the data of national tobacco excise tax revenues from State Administration of Taxation, in the second month after the tobacco tax adjustments, that is, in June, national tobacco excise tax has had a significant increase, with 4.3 billion yuan more than in May, or rising 31.3 percent.

However, marketing results show that the wholesale, retail prices of majority tobacco products had not changed after the tobacco tax rate revision. That is to say, the adjustment reduced the profits of tobacco producers and tobacco dealers, as the new tax burden was undertaken by the tobacco industry itself and thus has no significant effect on wholesale price and retail price.

Therefore, it caused little economic pressure on tobacco users. For their lack of motion in giving up smoking, the increase of tobacco tax cannot reach the goal to reduce the smoking rate.

In fact, to increase the price of tobacco by increasing the tobacco tax can not only increase the Government's tax revenue, but also is the most effective way to reduce tobacco use and smoke rates. According to researches, if the tobacco prices increase by 10 percent, the consumptions will reduce by 4 percent in high-incoming countries and 8 percent in developing countries. And to increase tobacco prices has been proved to be effective in preventing children from starting to use tobacco products and in encouraging tobacco users to quit smoking.

In April 2009, the U.S. government has increased the federal tobacco tax from 39 cents per pack to 1.01 USD, which is the largest increase in American history. UK has also twice raised its tobacco tax. In addition, Ukraine, Iceland, Thailand, Greece and Indonesia have made the decision to increase tobacco taxes.


The tobacco tax rate is 40% of the retail price in China which is much lower than the middle level, 65%-70%, of the international tobacco tax. Some scholars believe that China's tobacco tax still have climbing space.

Mao Zhengzhong, a famous professor from Sichuan University, pointed that once China's tobacco tax has increase to 51% of the retail price, it will have some influence to the price of the cigarette, the number of smoker will decrease and the health condition will be improved. At the same time, the government will get 64.9 billion yuan more tax.

Hu Angang, director of the National Condition Research Center of Tsing-hua University, said that as the increasing of the ad valorem tax will lead consumers to buy lower price level cigarettes, we should follow the specific tax policy when increasing the tobacco tax. We should make sure the actual amount of the tobacco produces rather than the value of them. This will decrease the tax gap and price gap of different cigarettes and solve the lower price cigarette substitution problem.

In fact there are international unified standards for us. The Framework Convention on Tobacco Control has urged all the countries to increase the price of the cigarette products by tax. The 6th clause of the Convention pointed out that all the tobacco products should adopt the similar tax and this tax should be adjusted periodically according to inflation. The cheaply-priced tobacco products should be equivalent to cigarettes and other high-tax tobacco products to avoid consuming substitution problem.

China is world's largest tobacco producing country as well as the largest tobacco consuming country. At the same time, China is also a contracting party of the Convention. The Convention was taking into effort in Jan 9, 2006 and will implement in full in Jan 9, 2011 in China.

According to the statistic data, the number of smoker in China is more than 300 million. More than 1 million people die of tobacco related diseases ever year. In addition, smoking will cost about 186 billion yuan per year in China which is about 1.9% of our GDP. Smoking will also directly cost more than 14 billion yuan for medical care which is about 3.1% of expenditures for medical care and public health per year in China. Its indirectly cost is about 172 billion yuan which is a large burden for society.

Tsing-hua University contributed to the story

By People's Daily Online
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