Price, Tax and Cigarette Smoking: Simulations of China¡¯s Tobacco Tax Policy

Song Gao () and Rong Zheng ()
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Song Gao: School of Public Finance and Public Policy, Central University of Finance and Economics, Beijing 100081, China
Rong Zheng: School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2012, vol. 7, issue 4, 604-626

Abstract: This paper explains the tobacco tax structure and cigarette pricing mechanism in China, develops a general analytical framework for analyzing the Chinese tobacco turnover tax system, and examines the effects of 2009 tobacco tax adjustment on cigarette prices and tax revenue. We find that although the tax is not the most important factor determining cigarette retail prices, the tobacco tax does significantly affect the tobacco industry¡¯s profits under the current tobacco monopoly system in China. Therefore, the adjustment of the tobacco excise tax in 2009 did not raise cigarette retail prices, instead government tax revenue increased. In other words, the net result of the tax adjustment was a transfer of the tobacco industry¡¯s profit to government tax revenues. Profit margins ultimately determine cigarette wholesale and retail prices. From the perspective of tobacco control, China needs to reform its tobacco tax system and collect taxes at the retail level to increase overall cigarette retail prices, as well as reduce the government¡¯s monopolization over cigarette productions and sales.

Keywords: tobacco tax; retail price; tax rate; tax revenue; tobacco control (search for similar items in EconPapers)
JEL-codes: H20 I18 (search for similar items in EconPapers)
Date: 2012
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