China Axes Tax Breaks For Tobacco Advertising

by Mary Swire, Tax-News.com, Hong Kong

14 August 2009

Tobacco firms in China will no longer be able to deduct costs associated with advertising as a result of a recent edict issued in Beijing.

According to a circular released by the Ministry of Finance on August 10, the change in the tax deduction rules for tobacco firms has been backdated to January 1, 2008, when a new corporate income tax law harmonizing the corporate tax rate at 15% took effect.

The circular expires on December 31, 2010, after which all advertising and promotional activities will be banned in an effort to curb the consumption of tobacco products in a country where smoking is widespread. It is estimated that China has around 350 million smokers, with around 1 million individuals dying from smoking-related illnesses each year.

Earlier in the year, the Chinese government announced increases in the consumption tax levied on packets of cigarettes by 6-11% in a double-edged attempt to reduce smoking and increase revenues.

According to the country's State Administration of Taxation, the new tax rates – along with the introduction of a 5% levy on tobacco wholesalers – came into effect on May 1.

The changes mean that tax on the most expensive brands of cigarettes has risen from 45% to 56% per carton, with taxes on cheaper brands jumping from 30% to 36%.

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