China Increased Taxes on Tobacco Products

China has raised taxes on tobacco products. The Ministry of Finance and the State Administration of Taxation have released a joint document stating that the move aims to 'moderately' increase financial revenue, and 'perfect' the taxation mechanism. Our reporter Wang Ling has more.

Reporter:

Tax on cigarette cartons costing 70 yuan or more has risen to 56 percent from the previous rate of 45 percent, while tax for cigarette cartons costing less than 70 yuan went up to 36 percent from 30 percent.

At the same time, a tax based on the real value of the product at 5 percent has been introduced on tobacco products for the first time.

Professor Zhang Bin from Chinese Academy of Social Sciences says the increased tax on tobacco not only helps the government tap additional revenue but is a bid to deter marginal and cost-conscious smokers from lighting up.

"To increase tax on tobacco products will certainly help government raise income as the fiscal revenue has been negative from January to April. Some specific tax-raising measures are adequate within the context of structural reform of the nation's tax system as long as this move will not hurt economic recovery."

China has the world's largest population of smokers. Statistics from last year show one fourth of the country's 1.3 billion population are cigarette consumers; and about one million die of tobacco-related diseases each year. On the other hand, the tobacco industry in China is the most profitable with a gross profit of 17.3% last year.

Researcher Yang Zhiyong from Chinese Academy of Social Sciences believes the profit margin for the tobacco industry will remain large even after taxes are increased.

"We have been talking about raising taxes on tobacco products for a long time. I think there is still room for the country to further increase the tax on the industry. With concerns of public health and stopping young people from being addicted, it is necessary to put more pressure on the suppliers."

Figures from China's statistic bureau show the price of tobacco products went up 0.2% last month while the country's CPI declined 1.4%. After all the math has been calculated, the increased taxation will in reality put some 16% more imposition on the cigarette makers.