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Can increases in the cigarette tax rate be linked to cigarette retail prices? Solving mysteries related to the cigarette pricing mechanism in China
  1. Song Gao1,
  2. Rong Zheng2,
  3. Teh-wei Hu3
  1. 1School of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China
  2. 2School of International Trade and Economics, University of International Business and Economics, Beijing, China
  3. 3School of Public Health, University of California, Berkeley, California, USA
  1. Correspondence to Professor Song Gao, School of Public Finance and Public Policy, Central University of Finance and Economics, Beijing 100081, China; song.gao{at}gmail.com

Abstract

Objective To explain China's cigarette pricing mechanism and the role of the Chinese State Tobacco Monopoly Administration (STMA) on cigarette pricing and taxation.

Methods Published government tobacco tax documentation and statistics published by the Chinese STMA are used to analyse the interrelations among industry profits, taxes and retail price of cigarettes in China.

Results The 2009 excise tax increase on cigarettes in China has not translated into higher retail prices because the Chinese STMA used its policy authority to ensure that retail cigarette prices did not change. The government tax increase is being collected at both the producer and wholesale levels. As a result, the 2009 excise tax increase in China has resulted in higher tax revenue for the government and lower profits for the tobacco industry, with no increase in the retail price of cigarettes for consumers.

Conclusions Numerous studies have found that taxation is one of the most effective policy instruments for tobacco control. However, these findings come from countries that have market economies where market forces determine prices and influence how cigarette taxes are passed to the consumers in retail prices. China's tobacco industry is not a market economy; therefore, non-market forces and the current Chinese tobacco monopoly system determine cigarette prices. The result is that tax increases do not necessarily get passed on to the retail price.

  • Cigarette
  • pricing
  • taxes
  • China
  • health services
  • taxation and price
  • economics

Statistics from Altmetric.com

Footnotes

  • Funding This study was supported in part by the Johns Hopkins Bloomberg School of Public Health, Bloomberg Initiative to Reduce Tobacco Use (SG and RZ), by the US National Institutes of Health, Fogarty International Center grant (R01-TW05938) and the Gates Foundation (T-wH).

  • Competing interests None.

  • Provenance and peer review Not commissioned; externally peer reviewed.

  • Data sharing statement The authors would be glad to provide the data sources for table 1 and table 2.

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