Tobacco and China A Complex Challenge

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Tobacco and China A Complex Challenge

• By
• Ayda A. Yurekli, Ph.D
• World Bank,
• Washington DC
• Ministerial Level Economics of Tobacco Control
  Seminar, Beijing, China November 2000

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Why should governments intervene?Large and
growing number of deaths from smoking

• World Annual Tobacco deaths (in millions)

2000 2030 Developed 2
3 Developing 2 7 World Total 4
10

• 1 in 2 of long-term smokers killed by their
  addiction
• 1/2 of deaths in middle age (35-69)

Source Peto, Lopez, and others 1997 WDR 1993
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With current smoking patterns, tobacco will
eventually cause more than 2 million deaths each
year in China
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Increase in domestic cigarette sales has slowed
in 1990s
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China Smoked 32 of the Global cigarettes in 1999
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Chinese women pick up the smoking habit as they
get older
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Smoking Addiction Starts Early in Age
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Higher the Income, Lower the Prevalence Rate, but
not for Women in China
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Smoking is more prevalent among less educated and
China is no exception
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Trends in Total and Per Capita Sales in China
1989-1998
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As price increases, consumption falls
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As the Chinese Government Increases Prices,
Revenues Increases
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Tobacco tax revenue is the single largest tax
revenue in China
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Tobacco is a major source of tax revenue for
provincial and local governments
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Tobacco tax revenue is not a significant source
of government revenue in most countries
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Tobacco trade was effected by the Asian Crisis
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New Governments Policy on Tobacco Production and
Area
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Chinese Governments Efforts to Increase
Quality,
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Smuggling ? Each year at least 100 billion
cigarettes enter China illegally and 1.4 billion
cigarettes are legally imported.? Demand for
foreign cigarettes is quite large.? Illegal
production of domestic cigarettes is a growing
problem.? Anti-Smuggling Campaign started to
crackdown on corruption
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Smuggling Concerns ? Smuggling causes revenue
loss to governments In China, it is estimated
that 15 billion yuan (US 1.8 billion) is lost
per year and this is growing. ? Smuggled
cigarettes sell at a lower price, making
cigarettes more affordable and therefore
increasing consumption ? Smuggling activities
provide more opportunities for organized crime
networks and may increase the general level of
corruption in the country? One of the most
frightening outcomes of smuggling is the
likelihood that children will find it easier than
ever to purchase tobacco products,
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Sweden decreased cigarette taxes (27) due to
fear of smuggling in 1998
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Tobacco smuggling tends to rise in line with the
degree of corruptionSmuggling as a function of
transparency index
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Chines governments anti-smuggling campaign has
had a substantial impact on illegal imports
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Types of Tobacco Taxes

• Excises
• Specific - based on quantity
• Ad-Valorem-based on value
• VAT
• Customs Duty

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Ad-Valorem versus Specific Taxes
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Administration of Tobacco Taxation and Revenues

• Administration
• a. Compliance
• b. Registration and licensing
• c. Timing of tax liability and tax payment
• d. Bonding
• e. Physical controls
• f. Use of stamps
• g. Refunds and credits
• h. Floor stocks tax

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Earmarking tobacco tax revenues

• Justification of earmarking tax revenues
• 1. Earmarked tobacco taxes could be used to fund
  health promotion and disease prevention.
• 2. Earmarked tobacco taxes promote vertical
  equity.
• 3. Earmarking Revenues for Tobacco Farmers
• 4. Earmarking revenues for other anti-tobacco
  activities