A man smokes a cigarette near a no-smoking sign in Huai'an, Jiangsu province, on Nov 25, 2014. [Photo/IC]

Increase in levy is estimated to bring in extra 87.6 billion yuan in revenue for government

China should raise the tax on cigarettes further to reduce the use of tobacco, and the increased revenue could be invested in the health and medical sectors, an expert said on Monday.

On Friday, the Ministry of Finance raised the consumption tax on the wholesale price of cigarettes from 5 percent to 11 percent. Cigarettes are now also taxed at 0.005 yuan each. The changes took effect on Sunday.

It is the first increase since May 2009, when the tax on top-brand cigarettes was raised from 45 percent to 56 percent.

"Cigarettes are very cheap in China, so it is time to raise the price of cigarettes through taxes," Hu Teh-wei, emeritus professor at the University of California, Berkeley, said on Monday.

Hu was speaking at an event hosted by the World Health Organization and the World Bank in Beijing.

The owner of a tobacco store in Beijing told China Daily that prices of most cigarettes sold at the store had been increased by about 10 percent over the weekend. For example, a pack of a popular brand, which used to cost 25 yuan ($4), now costs 27 yuan.

"Business has not been affected," said the owner.

Hu said, "It (the tax increase) is not enough."

From 2000 to 2012, the price index for cigarettes sold in China rose by 3 percent, Hu added. Considering the rise in people's income, "cigarettes are 70 percent more affordable than before," he said.

In contrast, food prices have doubled during the period and liquor prices increased by 140 percent, he said.

"The increase in cigarettes' price is only catching up with the others," Hu said. "China should further raise the tax on cigarettes."

Rose Zheng, a professor of finance and taxation studies at the University of International Business and Economics in Beijing, said taxes account for about 50 percent of the retail price of cigarettes in China, lower than in many other countries.

According to the World Health Organization, this figure is as high as 80 percent in some European countries, including Britain. The WHO recommends a tax of at least 70 percent for China.

The tobacco industry is a major source of tax revenue in China, contributing more than 900 billion yuan last year.

Based on this, Zhu Weiqun, an economics professor at Shanghai University of Finance and Economics, estimates that the latest increase in the wholesale price of cigarettes will bring in an additional 87.6 billion yuan in tax compared with last year.

Hu suggested that China allocate part of the increased revenue from tobacco taxes to health insurance so that poorer people, including smokers, benefit.

Contact the writers through wangxiaodong@chinadaily.com.cn