Key Points
- Tax Design: China’s tobacco tax debate is shifting from whether to raise cigarette prices to how the tax system should be structured.
- Policy Proposals: Experts discussed increasing specific excise taxes, setting minimum tax burdens and creating a dynamic adjustment mechanism linked to income and inflation.
- Health Costs: Experts linked tobacco tax reform to China’s aging population, chronic disease burden, health insurance pressure and public health funding needs.
- Policy Trade-offs: International experience suggests high tobacco taxes may reduce consumption, but can also increase risks of illicit trade, downtrading and fiscal dependence.
- New Nicotine Products: Public reports on the Beijing meeting did not mention e-cigarettes, heated tobacco products, nicotine pouches or other new tobacco and nicotine products.
2Firsts
Shenzhen, June 11, 2026
China’s tobacco tax debate is moving beyond whether cigarettes should become more expensive and toward how the tax system should be designed.
At a Beijing media briefing held on May 31, World No Tobacco Day, medical, public health and tax experts discussed proposals including higher specific excise taxes, minimum tax burdens and a dynamic adjustment mechanism tied to income growth and inflation.
2Firsts reviewed coverage by Caixin, Science and Technology Daily, Red Star News, The Medical Journal and Yicai. The meeting, co-hosted by the Beijing Tobacco Control Association, China-Japan Friendship Hospital and the University of International Business and Economics, also involved institutions including the World Health Organization China Office and the University of Oxford.
The discussion focused on conventional cigarettes, tobacco taxation, cessation services and public health funding. It did not address e-cigarettes, heated tobacco products, nicotine pouches or other new tobacco and nicotine products, even as those categories have become part of tax and regulatory debates in major markets including the United States, the United Kingdom and the European Union.
Minimum Tax Burdens and Dynamic Adjustments Enter the Discussion
The most detailed policy discussion at the meeting centered on how tobacco taxes should be structured.
Zheng Rong, a professor at the University of International Business and Economics, said China has a large share of low- and mid-priced cigarettes and a clearly segmented price structure. If the tax system is not designed carefully, companies could absorb part of the tax burden by reducing margins, adjusting product specifications or launching cheaper products. Smokers could also shift to lower-priced cigarettes, weakening the intended tobacco control effect.
Experts proposed increasing the weight of specific excise taxes — taxes levied at a fixed amount per unit — within the cigarette tax structure. This would reduce the substitution space created by taxes based only on a percentage of price. They also suggested setting a minimum tax burden and a minimum price floor to narrow the market space for low-priced cigarettes, while simplifying the tax structure to reduce opportunities for companies to avoid higher tax burdens through product segmentation.
Huo Zhiyuan, vice president of the Hebei Certified Tax Agents Association, focused on the pace of reform. He said tobacco tax reform should be gradual and predictable, rather than relying on a one-time sharp tax increase. Suggested measures included announcing tax adjustment plans several years in advance, establishing a mechanism linked to income growth and inflation, and ensuring that tobacco prices rise faster than household income over the long term.
Huo also said that, given China’s fiscal system, tobacco monopoly framework and tobacco control objectives, tobacco consumption tax is better suited as a central tax rather than a local or heavily shared tax. His reasoning was that tobacco tax is not only a revenue instrument, but also a policy tool intended to reduce tobacco consumption through pricing and lower the burden of disease and social costs.
China’s Two Sessions Had Already Raised Consumption Tax Reform
During China’s 2026 Two Sessions, the government work report again called for consumption tax reform. 2Firsts previously reported that tobacco is one of the largest revenue sources in China’s consumption tax system, making related policy signals a focus for industry and policy observers.
The government work report said China would “improve the local tax system and expand local tax sources,” while “adjusting and optimizing the scope and rates of consumption tax and moving the collection point of some items further downstream.” The statement did not name specific industries. But because tobacco has long been the largest source of consumption tax revenue, the tobacco tax system — including collection points, tax burden structure and regional revenue distribution — has remained an important background issue in consumption tax reform discussions.
Health Costs and Chronic Disease Pressures Add Urgency
Experts linked tobacco tax reform to China’s aging population, rising chronic disease burden, and long-term pressure on health insurance funds and public health spending.
According to figures cited by Chinese media from Zheng Rong’s research team, the total economic cost of smoking in China rose from RMB 1.40 trillion in 2012 to RMB 2.43 trillion in 2020, averaging about 2.3% of GDP per year. By comparison, the tobacco industry’s fiscal contribution, including taxes and profits, was RMB 1.52 trillion in 2020. Based on that estimate, the economic cost of smoking was about 1.6 times the fiscal return from the tobacco industry.
Experts at the meeting argued that tobacco tax should not be viewed only as a fiscal revenue issue, but also as a tool for health finance and public health governance. Some suggested using part of any additional tobacco tax revenue for health insurance, public health, cessation services and chronic disease prevention, creating a policy loop between tobacco tax revenue and health investment.
The Other Side of High Tobacco Taxes: Illicit Trade, Downtrading and Fiscal Dependence
International markets show a more complicated picture of tobacco tax outcomes.
In October 2025, 2Firsts published an opinion article by Samrat Chowdhery, “Tobacco Price Elasticity—A Convenient Myth?” The article argued that tobacco price elasticity is often used to justify higher tobacco taxes, but that this framework may oversimplify nicotine dependence. It said smoking behavior is shaped not only by price, but also by psychological, social and structural factors, as well as access to alternatives.
Samrat argued that, in some markets, high tobacco taxes can have unintended consequences, including stimulating illicit tobacco markets, increasing the burden on low-income smokers, and allowing fiscal objectives to outweigh public health goals. He said that if tobacco taxes are intended as a public health measure, more of the revenue should be reinvested in cessation support, tobacco control services and lower-risk alternatives.
Similar concerns have emerged in other markets. In September 2025, 2Firsts reported Euromonitor International’s view that the global nicotine market remained resilient, while regulatory pressure and illicit trade were reshaping the market. Shane MacGuill, Euromonitor’s global lead for tobacco and cannabis, said at the International Tobacco Growers Association annual meeting that in Australia — a high-tax, highly regulated market — illicit tobacco products had captured an unusually large share of the market.
At British American Tobacco’s FY2025 results call in February 2026, BAT Chief Executive Tadeu Marroco also cited Australia as an illicit trade case. He said regulatory imbalance in Australia was encouraging consumers to shift to products cheaper than those in the legal market, and said a large share of nicotine consumption in the country had moved into illicit channels.
These cases show that the impact of tobacco tax policy depends not only on the tax rate itself, but also on price transmission, enforcement capacity, the scale of illicit trade, substitution into lower-priced products, cessation support and the regulation of alternatives.
Public Reports Did Not Mention New Tobacco or Nicotine Products
The meeting focused mainly on conventional cigarettes, tobacco taxes, cessation services and public health funding. It did not mention e-cigarettes, heated tobacco products, nicotine pouches or other new tobacco and nicotine products.
Over the past five years, new nicotine products have grown rapidly in multiple global markets and have become an important factor in traditional tobacco use, product regulation and tax policy.
In major markets including the United States, the United Kingdom and the European Union, e-cigarettes, heated tobacco products and nicotine pouches have already been included in regulatory and tax discussions. Related issues include product classification, tax design, risk differentiation, youth protection, market access, illicit market control and substitution between different nicotine products.
For continued coverage of China’s tobacco market, regulation and tax developments, follow 2Firsts.
Cover image generated by AI.
Disclaimer
This article is provided solely for professional research, industry discussion, and informational purposes. Any references to brands, companies, products, technologies, or policies are made for factual reporting and analytical purposes only, and do not constitute endorsement, recommendation, promotion, or advertising by 2Firsts.
Nicotine-containing products, including but not limited to cigarettes, e-cigarettes, heated tobacco products, and nicotine pouches, carry significant health risks. Readers are responsible for complying with all applicable laws and regulations in their respective jurisdictions, including age restrictions and access limitations.
The information contained in this article should not be regarded as investment, legal, medical, regulatory, or commercial advice. While 2Firsts strives to ensure the accuracy and reliability of its content, it does not assume liability for any direct or indirect loss arising from errors, omissions, inaccuracies, or reliance on the information contained herein.
This article is not intended for individuals below the legal age for accessing tobacco or nicotine-related information in their jurisdiction.
Copyright Notice
This article is either original content produced by 2Firsts or content reproduced, translated, summarized, or adapted from third-party sources with attribution where applicable. The intellectual property rights of the original content remain with 2Firsts or the respective original rights holders.
No individual or organization may copy, reproduce, distribute, republish, modify, translate, or otherwise use this content without prior authorization. Any unauthorized use may result in legal action.
For copyright-related inquiries, corrections, or removal requests, please contact: info@2firsts.com.
AI-Assisted Translation and Editing Notice
Portions of this article may have been translated, edited, or reviewed with the assistance of artificial intelligence tools to improve efficiency and readability. Due to the limitations of AI-assisted translation and editing, discrepancies, omissions, or inaccuracies may exist when compared with the original source.
Where applicable, readers are advised to refer to the original source for the most complete and accurate information. If you identify any errors or believe that any content infringes upon your rights, please contact us at info@2firsts.com, and we will review and address the matter promptly.
