Cigarette Stocks Gone in Puff of Smoke
Feb 26th, 2009
Timothy Chui and Grace Tsoi - Hong Kong Standard - Thursday, February 26, 2009
Smokers eager for a pre-budget- priced nicotine hit cleared convenience stores across the territory of cigarettes yesterday.
News that the city’s tobacco tax was being increased by 50 percent - effective immediately - just before noon left stores
short or sold out of cigarettes by early evening.
One store clerk said his shop was cleaned out of 2,700 packs, with buyers breaking brand loyalty to snap up all 40 or so
brands on offer.
Street vendors also tried to make a killing by upping the price of pre- budget cigarettes before the 50 percent hike in
tobacco duties announced by John Tsang took effect.
Tsang said tobacco duties would rise by HK$8 per pack, taking the total duty per pack to HK$24 from HK$16.
Last night Shau Kei Wan street hawkers were charging HK$37 a pack.
The duty hike will boost the goverment’s take from HK$3 billion to HK$3.8 billion a year, said a government source
who put the number of smokers in the SAR at about 600,000.
He added that while progress had been made in making male smokers quit, younger female smokers were taking their
place.
Professor Judith Mackay, director of the Asian Consultancy on Tobacco Control and senior policy adviser to the World
Health Organization, called the budget’s only tax hike a “much- needed, overdue and timely increase.”
She said cigarettes were getting cheaper in real terms because tobacco duties had remained the same over the past eight
years.
She added that every jurisdiction that increased tobacco duties saw declines in smoking rates, especially among the
young.
Mackay said there was a 4 percent decrease in smoking rates for every 10 percent increase in tax, while a government
source pegged the figure at 6.3 percent per 10 percent.
Anti-smoking group Clear The Air called for a doubling in manpower for the Tobacco Control Office, and said
legislation should be passed to bind tobacco duties at no less than 80 percent of final retail costs to prevent tobacco
companies from absorbing the hike.
A Japan Tobacco International spokeswoman does not see the number of smokers dropping after the tax hike. She
pointed out that the average daily consumption during the early 1990s was steady despite a 200 percent tax hike in March
1991.
She warned higher taxes will lead to more cheap illegal cigarettes.
A Philip Morris Asia spokeswoman echoed the smuggling concerns.
Economic Assignment 2
Cigarettes are a necessity for the smokers. No matter how the cigarette seller increases
its price, the smokers still continue to buy similar quantity. Therefore the demand of
cigarette is inelastic.
When the demand is inelastic,
percentage fall in quantity
demanded is less than the
percentage rise in price.
Loss in total revenue is less than
gain in total revenue.
Quantity
Total revenue rises.
We can conclude that when there’s tax or other factors that led to the increase in price
of cigarette, the smokers will still buy. And the seller will increase the price in order to
increase its total revenue.
The Financial Secretary Tsang imposed the tobacco tax ($8). He emphasized that, the
tobacco tax can help raise government revenue and discouraging people to smoke
simultaneously. The cigarette sellers immediately increase the price of cigarette per
pack by $8. Which is increasing from $16 to $24, some of them even charge a higher
price up to $37.
A per-unit sales tax($8) will cause
decrease in supply (S1>S2).
The equilibrium price rises from
$16 to $24 while the equilibrium
quantity remains unchanged, as it
is a habit for smokers. Which
means the demand for cigarette is
perfectly inelastic.
The tax burden is borne entirely by
consumers.
In a newspaper article on 24/4/09 (私 煙 販 :多 謝 財 爺 加 稅
加 價 生 意 仍 大 增 ) told
us that
the increase in tobacco tax led to the presence of black market, which sold a even
higher price of cigarette than usual ($39 per pack).
As the price of cigarette is expected to rise in the future, the present demand for
cigarette will increase, vice versa.
(Evidence: Cigarette stock gone)
Mary Law
4A (19)