Smokers May Be Singed by Tax Hikes

China plans to increase taxes on mid-and low-end cigarettes in a bid to curb expanding tobacco consumption in the country, Minister of Health Chen Zhu said on Friday.

The move follows the tax hike targeting high-end cigarettes in 2009, which hasn't met the country's target of easing the rising use of tobacco, Chen said.

"We notice that most of the growing proportion of smokers are young adults, who consume low-end cigarettes and are sensitive to prices. As such, I'm confident that the tax hike will effectively help reduce the number of smokers without affecting fiscal revenue," Chen said on the sidelines of the plenary sessions of the ongoing National People's Congress.

The tax charge is "imperative" given the growing health and environmental concerns arising from smoking, Chen said.

China National Tobacco Corp, the country's State-owned cigarette monopoly, reported an annual net profit of 117.7 billion yuan (US$18.6 billion) in 2010. The profit has triggered widespread public criticism of the company's windfall at the cost of Chinese people's health.

China, the world's biggest tobacco producer and consumer, currently has 350 million smokers and more than one million people on the mainland die of smoking-related diseases each year, official statistics showed. That number is expected to rise to two million by 2020.

The mounting health concerns have pushed authorities to raise the levy on cigarettes by 6 to 11 percent in May 2009. But the tax didn't curb cigarette use as some experts expected.

The retail price of cigarettes didn't go up accordingly as the State Tobacco Monopoly Bureau reacted by absorbing the tax hike and maintaining cigarette prices, said Wu Yiqun at the ThinkTank Research Center for Health Development, a non-governmental organization committed to smoking control.

"Thereafter it had little effect curbing the smoking epidemic," she said, calling for increased prices of cigarettes after the tax hike.

In this regard, whether the coming tax hike would really make smokers quit remains a big question, said Yang Gonghuang, director of the Tobacco Control Office under the Chinese Center for Disease Control and Prevention.

According to her, taxation policies in China are determined by the Ministry of Finance but pricing of tobacco products is largely under the control of the State Tobacco Monopoly Bureau, which also owns China National Tobacco Corporation.

"Only when retail cigarette prices go up along with a raised levy on cigarettes could the number of smokers be affected," she explained.

International studies have found that when tobacco prices rise by 1 percent, the number of smokers dwindles by about 0.4 percent.

In China, about half of the smokers consume low-end cigarettes priced below 5 yuan, according to a 2011 survey by the Chinese Center for Disease Control and Prevention.

"The key to cut the number of smokers and curb smoking is to both raise taxes and retail prices of mid- and low-end cigarettes," she said.

Since most of the expensive cigarettes are given as gifts, price hikes don't work well in deterring such purchases, said Wu.