The largest tobacco market is likely to be down as the taxes are increased

The Chinese government has increased cigarette consumption tax by 11 percent in order to reduce smoking rates and collect more revenue to the treasury.

According to Chinese Department of Taxation, the tax increase was approved almost two months ago, but was revealed only last week. Moreover, the government decided to also raise excise cigarette taxes for wholesalers by 5 percent.

Department of Taxation spokesman declared that the tax has not been imposed yet and it is still not specified what portion of the hike will be absorbed by the tobacco industry, wholesalers and distributors.

In an interview with a local news agency, Prof. Na Ting of Peking University School of Clinical Medicine said that the legislation approved by the government should not be regarded as a simple tax hike, but an essential and significant step to cure nation’s tobacco addiction and save millions of lives.

Another statement about the tax hike issue was made yesterday by the Chinese Tobacco Control and Prevention Agency that declared that many governments in the world have implemented similar policies since it has been scientifically proven that tobacco price increases have been the most efficient strategy in the struggle to reduce smoking rates and stop minors from picking up the hazardous habit.

In conformity with the Chinese Department of Health statistics, there are almost 400 million smokers in the country, what makes up about 30 percent of population. Each year more than 10 millions are treated for diseases caused by smoking, with 1 million of them perish away annually.

Chine is the biggest tobacco market in the world, whereas the sales exceed two trillion sticks each year. However the Chinese lawmakers have initiated several awareness and educative campaigns in order to reduce smoking rates, particularly after signing World Health Organization Tobacco Control Convention four years ago.

Analysts admit that taxes on cigarettes and other tobacco products in China are much smaller than in other countries; therefore, even if handling the whole tax increase on smokers, the price of average cigarettes would be two times less than in other developed countries.

Na Pin, manager of a tobacco store in Beijing admitted that they have not increased prices yet, but would make it in the nearest future.

Pin mentioned that any additional tax hike would hurt business dramatically as sale volumes have already fallen significantly due to sharp economic downturn.

However Pin, who lights up more than twenty cigarettes each day, mentioned that price increase would not prevent her from smoking as she would better cut expenses in other areas, instead of giving up smoking.

The tax hike is expected to generate around 30 billion Yuan in additional revenue for the treasury, while the central government has planned a historic deficit for 2009 in order to provide funding of 4 trillion Yuan for stimulus package.

State revenues from tobacco taxes dropped by 7 percent within the first trimester of the current year, in comparison to the same time period a year before.

Experts anticipate revenues to rise by 8 percent to make up 6.5 trillion in the end 2009 under the budget revealed three months ago.