Raise consumption tax to reduce tobacco use

China increased its wholesale tobacco consumption tax from 5 percent to 11 percent late last week. It will help China’s tobacco-control endeavors, says an article from Xinhua News Agency. Excerpts:

This is China’s first tobacco tax adjustment in six years. From Sunday, the wholesale price of cigarettes rose about 6 percent, and the retail price of each pack of cigarettes by about 10 percent.

China has 300 million smokers, making it the world’s largest tobacco producer and manufacturer. Analysts point out that China’s adjustment of the tobacco consumption tax this time is in line with international trends in controlling tobacco use.

China started collecting a tobacco consumption tax in 1994, and the tax rate rose in 1998, 2001 and 2009. China signed the Framework Convention on Tobacco Control in 2005. But the size of its smoking population generally remained unchanged during the past 10 years. More than 740 million nonsmokers suffer from second hand smoke. And 11.5 percent of young people ages 13 to 18 are smokers.

I International experience shows that raising the price and tax on tobacco is an effective way to control tobacco consumption. Researchers at the World Health Organization indicate that every 10 percent of a price hike means 3.7 percent of adult smokers quit smoking, and 9.3 percent of young smokers give up smoking; these figures double in developing countries.

The low price of cigarettes in China is an important reason why so many young people easily become smokers. This round of tax adjustment is expected to reduce the number of young smokers in China.

The influence also spreads to the 1.6 million families planting tobacco and 5.2 million retailers. In China, more than 20 million jobs are related to the State-controlled tobacco industry. The tax adjustment will lower the overall consumption of tobacco products, and affect the whole industry.

The consumption tax adjustment focuses on the sale of tobacco, rather than the production of cigarettes. As a result, it more clearly targets consumers, intending and forcing some of them to give up smoking by raising cigarette retail prices.

Experts estimate that if the consumption tax on each pack of cigarette rises 1 yuan (16 cents), then the government’s tax revenues will increase 64.9 billion yuan, and about 3.4 million lives will be saved by preventing smoking-related deaths. That will save 2.68 billion yuan in medical bills and generate 9.92 billion yuan in productivity.