| Summary: | Background
Tax
increases are the most effective means of reducing tobacco use, but their
effectiveness also depends on tobacco industry pricing strategies - which determine
the extent to which taxes are passed-onto consumers. Common strategies include the
over-shifting or absorption (under-shifting) of taxes. China raised cigarette
taxes in 2015, providing a unique opportunity to examine the pricing strategy
of China's State Tobacco Monopoly Administration (STMA).
Methods
WHO TaXSiM China model was used to calculate the magnitude of the tax pass-through for
each cigarette Class at the wholesaler, retailer, and consumer levels after China 2015 tobacco tax increase. The net
effect across STMA's entire market was assessed using sales-weighted averages.
Results
China's
tax increase was partly absorbed in the profit margins of wholesalers across
all classes. However, on a weighted average basis, it was fully passed-on at
the wholesale level. The tax increase was over-shifted at the retail level,
with retail margins increasing except for Class III. The impact on consumers
varied by Class, but with the net effect being an over-shifting of tax. Tax was
over-shifted for Class V (the cheapest category) and under-shifted for Class
III (the most popular and mid-price category).
Conclusions
The STMA
employed a pricing strategy that was tailored to different Classes with the aim
of managing the shape of the market in the manner consistent with its wider
"key brand" strategy to promote mid and premium-priced brands.
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