The State Tobacco Monopoly Administration (STMA) recently issued a regulation on the management of e-cigarettes, which stipulates that the sale of flavored e-cigarettes other than tobacco flavor and e-cigarettes with self-added aerosol will be banned from May 1. For a time, sighed repeatedly.
Shares in Fogwick, a maker of electronic cigarette butts, fell 40 per cent, retailers began to scrap discounts and raise prices, and most consumers opted to stock up or quit smoking. Regulations on e-cigarettes have been refined and precise over the years, from restrictions on sales channels to restrictions on marketing methods to restrictions on product tastes, but the tax rate has not been raised to the same level as cigarettes. In fact, the benefits of higher taxes far outweigh the benefits of restricting tastes.
First, studies have shown that increasing taxes on tobacco is an effective way to reduce consumption of tobacco products.
Economists usually use elasticity to measure changes in quantity demanded due to changes in price. Most studies of cigarette demand have found elasticity between -0.2 and -0.6, meaning that a 10% increase in price reduces demand by 2% to 6%. E-cigarettes have even greater price elasticity, with some studies finding elasticity between -0.4 and -1.3.
According to a paper published in 2020 by Lei Haichao, deputy director of the Current National Health Commission, after tax adjustment, the retail price of cigarettes in China will increase by 6.3%, the per capita sales volume will decrease by 8.9%, and the price elasticity of cigarettes is -1.039.
This data shows that the demand of smokers in China is more easily affected by the price. It would be better to reduce consumer demand by raising tobacco taxes.