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Cigarette Tax Rise To Bring In 30 Billion Yuan

Reuters – Jun 21, 2009

Beijing has increased tax on cigarettes by between 6 per cent and 11 per cent to tap additional revenue for future government spending.

The tax rise took effect from the beginning of May, and a new tax of 5 per cent was also imposed on cigarette wholesalers, the China State Administration of Taxation said on its website.

“This is to appropriately increase the government’s fiscal revenue and also to perfect the cigarette taxing system,” it said.

The tax has not yet been passed on to smokers.

The mainland rolled out a massive 4 trillion yuan (HK$4.54 trillion) stimulus package late last year to bolster the third largest economy from falling into a deep recession.

The central government has to earmark about 1.18 trillion yuan for the package while the rest will come from local governments and bank loans.

“With government spending rising rapidly while fiscal revenue dips continuously, we are concerned about how to fund future costs,” an official from the tax administration said.
He estimated that the cigarette tax rise would add about 30 billion yuan of extra revenue to central government coffers.

“We know that the added size is not huge.

“But looking around, there is not much we can do to enhance our fiscal revenue,” said the official, who declined to be named.

The mainland’s combined central and local government revenues in the first five months totalled 2.71 trillion yuan, a fall of 6.7 per cent from the same period last year. Nationwide fiscal spending hit 460.8 billion yuan last month, an increase of 14.5 per cent, the Finance Ministry has said.

It said the economic slowdown and tax cuts were the underlying factors behind the fall in fiscal revenue in the January-May period.

The government estimates that there are 350 million smokers in the country. About 60 per cent of Chinese men and 3 per cent of women smoke.

Tobacco kills 1.2 million Chinese each year, according to the World Health Organisation.

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