The World Health Organization (WHO) today released its preliminary assessment of the impact of the increase to tobacco taxation announced by China’s Ministry of Finance on 8 May.
“Increasing tobacco taxes and prices is the single most effective way of reducing tobacco consumption in the short term. The WHO therefore welcomes the announcement by the Ministry of Finance of a tobacco tax increase in China,” said Dr Bernhard Schwartländer, WHO Representative in China.
“We are especially pleased to see that the new tax policy establishes the important precedent that tobacco tax increases should be passed on to the retail price of cigarettes, in order to reduce tobacco consumption for public health purposes,” Dr Schwartländer said.
Summary of changes
The tax increase announced by the Ministry of Finance last week and which came into effect on May 10 includes two components:
- an increase in the excise tax applied at the wholesale level, from 5% to 11%;
- a new, specific excise tax of 0.005RMB per stick, or 0.1RMB per pack of 20 cigarettes.
WHO’s preliminary assessment of the new policy
WHO has conducted preliminary modelling on the tax increase in conjunction with Professor Rose Zheng, at the WHO Collaborating Centre on Tobacco Control and Economics at the University of International Business and Economics in Beijing.
According to our preliminary analysis, the tax increase will lead cigarette retail prices to increase on average by between 7-10%, with the cheapest brands likely to increase the most.
For instance, the price of a pack of cigarettes which currently retails for 5 RMB could increase to around 5.5 RMB.
As a result of the changes, the share of excise tax as a proportion of the market average retail price of tobacco products is expected to increase from 30% to 34%.
The overall share of tax as a proportion of the market retail price of tobacco – including excise, Value-Added Tax (VAT) and other taxes – is likely to increase from 50% to approximately 54%.
WHO expects that increases in the retail price of 7-10% will have a modest but measurable impact on reducing total cigarette consumption, most notably with respect to the cheapest brands in the market which encourage use and uptake by vulnerable populations – such as young people and people on very low incomes.
However, it will be some time before the real impact of the tax increase can be determined – in particular, the impact on consumption. There are a range of variables which may affect this, for instance – the wide variation in cigarette prices in China.
Cigarette prices are still low by international standards and household incomes in China are growing strongly. This means that cigarettes will become more affordable over time unless regular tax increases are introduced by the Government.
WHO will continue to monitor the impact of the tax changes, in particular on retail prices.
“Right now, around 12% of all adult deaths in China are caused by smoking. This takes a heavy toll on China’s health system, and on the broader society and economy. High health costs fall most heavily on the poor, who can least afford to pay. This can lead to a vicious cycle of impoverishment,” Dr Schwartländer said.
“By raising tobacco taxes, the Chinese Government can reduce these costs, raise additional revenue, and improve public health – particularly amongst the poor: a classic ‘win-win’ policy,” Dr Schwartländer said.
“Even a marginal decrease in the smoking rate in China would mean millions fewer smokers, who will avoid the diseases and early death that comes with smoking. There is a direct link between the price of tobacco products and the level of consumption: in other words, the higher the price, the more lives that will be saved,” Dr Schwartländer concluded.
About the World Health Organization
WHO is the directing and coordinating authority for health within the United Nations system. It is responsible for providing leadership on global health matters, shaping the health research agenda, setting norms and standards, articulating evidence-based policy options, providing technical support to countries and monitoring and assessing health trends.
For more information please contact
Ms WU Linlin
WHO China Office
E-mail: wul@who.int
Office Tel: +86 10 6532 7191