Shanghai's estimated 5 million smokers are paying up to 10 percent more for cigarettes this week after China's Ministry of Finance raised the wholesale tobacco tax as part of national efforts to discourage smoking.
China is the world's largest tobacco market.
The wholesale tax was raised to 11 percent from 5 percent last week, and wholesalers also were hit with a 0.005 yuan surtax on every cigarette sold.
The pass-through effect at the retail level varies according to brands. Popular cheap brands, like Double Happiness, sell for below 10 yuan (US$1.60) a pack even with the new tax. Premium brands like Chunghwa can run as high as 70 yuan a pack. Prices of imported cigarettes like Marlboro usually start at about 20 yuan.
"The significant rise of the wholesale tax is expected to reduce cigarette consumption, especially among those who buy cigarettes in the low-to-middle price range," said Tang Qiong, a Shanghai health official involved in controlling smoking in public places.
Shen Lei, who has smoked up to two packs a day for 20 years, said he won't quit buying his favorite Zhong Nan Hai cigarettes, which now cost 1 yuan more at 11 yuan a pack.
"The price of cigarettes in China has barely changed much in the past 15 years," he said.
"They are still quite affordable."
About 20 percent of Shanghai's population above 15 years of age smoke, according to the last survey conducted by the city's Center for Disease Control and Prevention in 2013. Thirty-eight percent of men smoke, while only 1 percent of women reported that they light up.
The World Health Organization estimates that every 10 percent increase in the price of cigarettes drops consumption by 4 percent.
However, in China, personal incomes in cities like Shanghai are rising much faster than prices of cigarettes. Last year, urban per capita disposable income was 47,710 yuan, topping all the provinces in China.
Young smokers and those who buy cigarettes in the mid-to-low price range are the primary targets of the anti-smoking campaign, Tang said.
The government always faces a catch-22 in such campaigns. Fewer smokers mean healthier people and lower public medical costs, but fewer smokers also means less government revenue in a time when budgets are stretched.
The revenue from wholesale taxes on cigarettes is not available from the government, but tobacco companies are major tax contributors in China, according to tax authorities.