• Song Gao, Rong Zheng, and Teh-wei Hu.
• School of Public Finance and Public Policy, Central University of Finance and Economics, Beijing 100081, China. song.gao@gmail.com
• Tob Control. 2012 Nov 1; 21 (6): 560-2.

ObjectiveTo explain China's cigarette pricing mechanism and the role of the Chinese State Tobacco Monopoly Administration (STMA) on cigarette pricing and taxation.MethodsPublished 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.ResultsThe 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.ConclusionsNumerous 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.

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