Tax hikes assist China's anti-smoking efforts

SHANGHAI - China hiked its cigarette tax early this month, and the extra cost has pushed up retail prices.

Although it has yet to show a deterrent effect on smokers, it is conducive to the country's anti-smoking efforts in the long-run, experts have said.

On May 10, China raised the wholesale tax rate for cigarettes to 11 percent from 5 percent. Cigarette wholesalers must also pay an additional 0.005 yuan (less than one US cent) per cigarette sold.

According to the price bureau of Jiangsu Province, the wholesale price of cigarettes there has increased by 6 percent on average.

Data from local price monitoring departments across the country show the tax rise has largely been passed on to consumers. Cigarettes priced under 20 yuan per package have seen a price hike of between 0.5 and one yuan. Those priced above 20 yuan have generally been subject to a price rise of around two yuan per package.

Liu Hongmei has run a cigarette shop at Nanchang University of Jiangxi Province since 2004. "The price has not grown much, mostly from one to two yuan per package, and certain brands are still unaffected," she said.

"But it is the first time I have seen cigarette prices rise during the past 10 years," she added.

Since the launch of the cigarette taxation system in 1994, China has adjusted the tax rate in 1998, 2001 and 2009. Industry insiders speculate that this is the first time taxes have been raised as part of the country's anti-smoking efforts.

Yang Gonghuan, former deputy head at the Chinese Center for Disease Control and Prevention, said the 2009 tax hike was focused on imports and production and was not passed on to the retail price. However, this year's wholesale tax rise will directly affect consumers.

Zheng Rong, professor at the University of International Business and Economics in Beijing, said that prices for some cigarettes have remained unchanged because of large inventory.

"It is likely that cigarettes whose prices have not increased for the time being will see their prices grow in the near future," she said.

Consumer indifference

According to the WHO, when the price of tobacco products rises by 10 percent, the number of adults who quit smoking grows by 3.7 percent, and the rate for adolescents is 9.3 percent.

However, for many young smokers in China, the price increase seems to have made little impact on their smoking habits.

A Xiu, a second-year student at Yunnan Arts University, said he usually spends about 300 yuan on tobacco every month.

"I am used to smoking two brands at the same time: an 'ordinary' one that is 10 yuan per package and a 'good' one that is 22 yuan per package," he said.

"Now prices for both brands have grown by one yuan per package, which means that I will spend another 30 yuan every month. Well, that's no big deal," he said.

Xiao Ding, a fourth-year college student in Shanghai, has been smoking for four years.

"After hearing the news that cigarette prices would rise earlier this month, my friends and I joked about stocking up on cigarettes," he said.

"The Hongshuangxi cigarettes I used to smoke have just increased by one yuan to 30 yuan per package," he said. "Even if prices do rise a lot, I may just turn to a cheaper brand."

He said neither he nor his smoker friends intend to quit despite the price change.

Yang said the large price gaps between different brands pose an obstacle for tobacco control, since cheap cigarettes have seen only minimal price hikes and remain affordable for even the poorest consumers. The cheapest cigarettes are around two yuan per package, while high-end ones cost more than 100 yuan.

Zheng said the influence of the price rise may seem limited for now, since those who are addicted to cigarettes won't easily quit.

However, in the long run, anticipation of rising prices may deter those who are infrequent smokers or thinking about starting, she said.

Yang agreed that it should take at least a year to evaluate the effects of the tax hike by observing sales volume.

More to expect

China is home to 300 million smokers and 740 million more who are exposed to second-hand smoke.

Yang suggested that the country should continue to push up the retail price of cigarettes in the coming years to effectively curb smoking. She said the WHO has recommended that at least 70 percent of the retail price of cigarettes in China should come from taxes, compared to the current 50 percent.

Zheng suggested that China adjust the tax rate of cigarettes according to economic data such as the CPI every year to ensure that cigarette prices rise in accordance with consumers' purchasing power.

She said in addition to adjusting the price, the country should create a more favorable environment for smoking control through legislation.

China has accelerated its anti-smoking campaign over the past year. The top legislature adopted an amendment to the Advertisement Law in April, banning tobacco advertising in mass media, public places and outdoors.

Beijing will pilot the country's toughest smoking ban starting June 1, prohibiting smoking in all indoor public places, workplaces, and on public transportation.

Yang said it will take a combination of measures for the country to really create a smoke-free environment.