Tax Breaks for Tobacco Promotion End

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Aug. 12 – China’s Ministry of Finance and the State Administration of Taxation said in a circular that promotional spending by tobacco firms will no longer be eligible for tax breaks, effective until 2011.

By that time, tobacco promotion in the country will already be banned. China has been trying to find ways to boost tax revenue in the midst of implementing a massive government stimulus plan used to fuel local growth and a nine month decline in exports.

Authorities also hiked taxes on cigarette cartons priced more than RMB70 to 56 percent from 45 percent while cigarette cartons less than RMB70 were taxed 36 percent from 30 percent.

The circular also added that cosmetic, medical and beverage companies – except alcohol producers- can still deduct advertising expenses to a maximum of 30 percent of their total sales income.

Xinhua reports that prior to the new enterprise income tax implemented last year, companies could claim back 15 percent on their taxable income, not including companies in the tobacco industry.

Zhang Bin, an expert on price and tax studies with the Chinese Academy of Social Sciences was quoted by Xinhua as saying that the new provision meant tobacco companies would have to pay more tax and their after-tax profits would drop, indicating the government was taking a tougher stance to curb smoking.