Retailer: Tobacco Sales Shrink 70 per cent Following Triple Tax in China

Source from:  Chinadaily 08/18/2015

Last month, the Legislative Assembly passed a bill tripling tobacco tax in the city in an urgent procedure. The tax was officially increased on July 14. One month after, a tobacco retailer says the industry's overall sales have slumped by as much as 70 per cent.

Following the government tripling the tax on tobacco products last month, one of the city's tobacco retailers - Hing Cheong Hong Tobacco Company Ltd. - has told Business Daily that sales of the local tobacco retail industry have dropped from 60 to 70 per cent.

Last month, the government increased the tax on each cigarette to MOP1.5 (19 US cents) whilst that for cigars or cigarillos per kilogram was raised to MOP4,236, meaning a pack of 20 cigarettes is around MOP20 more expensive compared to the original tax of MOP0.5 per cigarette.

"Our sales have plunged 60 per cent to 70 per cent following the implementation of the new tax… Other industry retailers, as I know, have also experienced such drops in their sales," the general manager of Hing Cheong Hong, Sunny Iao, told us in a phone interview yesterday.

Regional competition

According to Mr. Iao, the increase in local tobacco tax has driven more residents to buy cigarettes in Zhuhai.

"Many prefer buying cigarettes in Zhuhai now. Before the rise, the price gap between the two cities was only some few dollars so people didn't care. But now, [for those] in Macau it's like a few tens more expensive. Even though people don't go to Zhuhai only for the cigarettes, they will buy when they pass by those duty-free shops when they cross the border," he said. "In addition, we have many Chinese workers crossing the border every day. It's easy for them to buy for their colleagues in Macau".

On the other hand, many local shops as well as individual smokers bought more cigarettes than usual when the government announced its proposed tax increase, according to Mr. Iao, indicating that this is another reason sales are down.

"Upon knowing the government's intention of increasing tobacco tax many shops ordered a lot more cigarettes than usual. Individual smokers also tried to buy more cigarettes. Hence, they may still be consuming the cigarettes that they bought before the new tax," the general manager said.

Nearly 100,000 duty-not-paid cigarettes seized

In addition to the tax hike, the city's new tobacco law also reduces the duty-free allowance for travellers entering Macau to 19 cigarettes from the original 100.

According to local Chinese-language newspaper Macao Daily, the Macau Customs have confiscated some 97,530 duty-not-paid cigarettes, or some 3,200 cigarettes per day, since the implementation of the new law on July 14 as at August 13, involving 293 cases.

Some 56 per cent of total violations were caught at the Border Gate, with more than 40,000 cigarettes seized. The city's Customs also confiscated some 21,500 and 15,600 duty-not-paid cigarettes at the Outer Harbour Ferry Terminal and Pac On Ferry Terminal, respectively.

Some 65 per cent of travellers carrying duty-not-paid cigarettes were from Mainland China, followed by local residents and people from Hong Kong.

Two-thirds of street tobacco vendors to close

The newspaper also quoted the Macau's Trade Chamber of Tobacco Companies' Andrew Chan Hou Lam as predicting that two-thirds of the city's street vendors selling cigarettes may face closure if the downturn in tobacco sales continues.

The association vice head said street vendors were the group most affected by the new tax as their income is lower and they cannot rely on selling snacks or beverages like convenient stores.

Mr. Chan also perceives that the drop in the city's tobacco sales is due to many residents, especially long-term smokers and those on a lower salary, starting to buy cigarettes in Zhuhai.

For the sales to rebound, Mr. Iao reckons that it will depend upon the enforcement of the Customs in catching violators bringing duty-not-paid cigarettes into the city.

"If the Customs strengthens its enforcement, for sure the local consumption in cigarettes will be boosted and sales will improve. But if the enforcement is rather loose the impact will continue to be big for local retailers. Frankly speaking, it's hard for the Customs to catch everyone that brings in duty-not-paid cigarettes," the Hing Cheong Hong general manager said. Enditem