To compare the new tobacco tax structure effective from May 2009 with the tax structure before May 2009 and to analyse its potential impact.
Published government statistics and estimated price elasticities of the demand for cigarettes are used to estimate the impact of the new tax rate adjustment on cigarette consumption and population health.
The new adjustment increased the tax rate by 11.7% points at the producer price level. Converting this 11.7% point increase to the retail price level would mean an increase of 3.4% points in the retail price tax rate. Thus, China’s new cigarette tax rate at the retail level would be 43.4% instead of the previous 40%.
The primary motivation for the recent Chinese government tobacco tax adjustment is to raise additional government revenue. Because the additional ad valorem tax has not yet been transferred to smokers, there is no public health benefit. It is hoped that the Chinese government will pass along these taxes to the retail price level, which would result in between 640 000 and two million smokers quitting smoking and between 210 000 and 700 000 quitters avoiding smoking-related premature death.