Experts from China’s State Administration of Taxation and the University of California, Berkeley unveiled a report, Tobacco tax and its potential impact on China, in Beijing last December. In the report, they called for a substantial increase in the cigarette tax rate in order to reduce cigarette consumption in China.
According to the experts, if China’s cigarette tax rate was raised to 51 percent of the retail price, an increase of 11 percentage points from the current level, 13.7 million smokers would therefore quit smoking and 3.4 million lives would be saved. The tax rate increase could also generate 64.9 billion yuan in additional revenue for the government every year.
There has long been an economic misreading of tobacco addiction: nicotine in tobacco makes smokers addicted to cigarettes, so price increases will never cut sales of cigarettes. However, evidences around the world in the past century prove that this is a false judgment. Almost in every country, once tobacco prices are raised, consumption will fall.
Statistics show that this is also the case in China. According to studies by professor Mao Zhengzhong from the West China University of Medical Sciences, a 10-percent increase in tobacco prices will reduce 1.5 percent of cigarette consumption. This is not a small figure in China. Every year, Chinese smokers consume 170 billion cigarettes and thus 1.5 percent means 2.55 billion cigarettes. This might be the total cigarette consumption in some other countries in a year.
Some people argue that raising tobacco taxes is unfair to low-income smokers because they have to spend more of their limited income on cigarettes. This is illogical. First, tobacco taxes are not the source of poverty, but the habit of smoking is an important factor contributing to poverty. In some of China’s low-income families, expenditures on cigarettes can account for 7-10 percent of their total income. If the smoking members abandon this habit, this part of their income can be spent on education, health and food.
Second, low-income smokers tend to be more sensitive to cigarette prices and so raising cigarette taxes will affect them greatly. In this sense, higher tobacco taxes have more benefits to low-income earners than harm.