What are the most profitable companies in the world? The answer of Apple, Microsoft, Google and Amazon in China has nothing to do with the Internet. It is a Chinese tobacco company. On March 1 of this year, the State Tobacco Monopoly Administration said that in 2019, Chinese tobacco companies turned in 1177 billion yuan, an increase of 17.7% over the previous year.
Here I want to explain a concept to you, tax rate is tax price profit.
In other words, the profit distributed by China Tobacco is equal to the tax rate minus the tax paid to the government.
Simply understood, tax profit is the pre-tax operating profit of China Tobacco Company. On average, China Tobacco can achieve”32 small goals” on the basis of daily tax payment.
There is also news on the Internet that a tax on Chinese tobacco can cover defense expenditure, which is really not a joke. According to public data, China’s military expenditure in 2019 was 1189.9 billion yuan, which was only a little higher than the 1177 billion yuan of tax paid by China Tobacco in 2019.
In fact, as early as 2014, the tax paid by Chinese tobacco companies exceeded 1 trillion yuan. We can see a few comparisons to help you understand. What is the concept of one trillion?
Take 2017 as an example, the total profit of China Tobacco Corporation was 1114.51 billion yuan. The total pre-tax profit of the BAT3 Internet giant in 2017 was 21.283 billion yuan for Baidu, 79.611 billion yuan for Alibaba and 88.215 billion yuan for Tencent.
The three companies add up to a little more than the fraction of China’s tobacco companies. What about the top five listed companies that make the most money in China?
According to the information disclosed in the financial report in 2017, the most profitable companies in A-share market were the four major banks and ICBC, the first bank in the universe, the leading brother of Ping An, with a profit of 364.541 billion, about 1/3 of China Tobacco.
To make a simple calculation, add up the four state-owned banks and the three Internet giants, and the profit is almost equal to that of a Chinese tobacco company. How did the Chinese tobacco company make so much money?
As a purely state-owned enterprise, China Tobacco Company has always kept a low profile. In fact, China Tobacco, which was established in 1982, has a history of 38 years and is nominally under the jurisdiction of the National Tobacco Monopoly Bureau, which was established in 1984. One is state-owned enterprises and the other is administrative subjects. These two institutions jointly manage tobacco institutions across the country, with more than 500000 employees, whether they are well-known cigarette brands across the country, such as China, or local cigarette brands, such as Nanjing and Lanzhou.
The cigarette factories under the jurisdiction of these two organizations, whether high-grade or low-grade cigarettes, are essentially processed tobacco products, not high-tech industries. The average price of cut tobacco is 10-20 yuan per kilogram.
The price of cigarettes should not have much difference. Just like you go to the market to buy rice, the cheaper five yuan, the more expensive ten yuan. But the reality is that the price of a pack of cigarettes ranges from a few yuan to hundreds of yuan, which can be divided into countless levels.
According to the 2013 to 2017 China Tobacco Products Analysis Report released by the Prospective Industry Research Institute, the gross profit margin of China’s tobacco industry has been higher than 60% since 2002, and the gross profit margin has exceeded 70% in 2012. By comparison, the average gross profit rate of A-share listed companies in 2012 was only 18.18%.
In China’s tobacco system, the tobacco bureau buys unprocessed cut tobacco from farmers and sells it to the cigarette factory, which then sells the corresponding finished products to the tobacco bureau at the allocation price. Then, the tobacco bureau sells cigarettes to licensed retailers across the country. In these steps, many links can only flow in one direction. For example, cigarette factories cannot directly purchase tobacco leaves, nor directly sell cigarettes to retailers or consumers. In this way, the Tobacco Bureau has ensured the monopoly position of China Tobacco in the national cigarette market, with a market share of up to 95%.
In addition to the low production cost, tobacco has another advantage compared with other industries. There is no need to advertise. China’s advertising law clearly prohibits any form of cigarette advertising, so China Tobacco can save a huge amount of market publicity costs every year. Don’t underestimate this. In the field of fast-selling products, manufacturers can’t differentiate their products from each other, so marketing is very important. Think about all kinds of alcohol advertisements you see on CCTV. Behind them are the marketing expenses of Tianmen Digital.
To sum up, low cost+monopoly operation+no advertising expenses, China Tobacco Company’s profit of 1 trillion yuan is that simple. At the same time, China Tobacco is also a heavily taxed enterprise. Almost all of the 1 trillion yuan has been taxed. That is to say, every time you buy a pack of cigarettes, most of the money is handed over to the state.
From 2013 to 2016, it accounted for 6.32%, 6.49%, 7.19% and 6.27% of the national tax revenue.
If the tax revenue is calculated according to the domestic cigarette brands, it is probably China: 120 billion, Yunyan and Furong Wang: 100 billion, Liqun and Hongshuangxi: 90 billion, Yuxi and Huanghelou: 80 billion.
The Notice of the State Administration of Taxation on Adjusting the Consumption Tax on Cigarettes stipulates that the tax rate for Class A cigarettes and cigarettes above 70 yuan per cigarette is 56%, and each cigarette will be charged an additional 0.003 yuan, while for Class B cigarettes that are less than 70 yuan per cigarette, the tax rate is 36%, and each cigarette will also be charged an additional 0.003 yuan. For those engaged in commercial wholesale, in addition to the 11% tax rate, an additional 0.005 yuan will be charged for each one.
If the price of a cigarette you buy is 100 yuan, then it belongs to Class A cigarette. At this time, it will be charged at the rate of 56%, and an additional 0.003 yuan will be charged for each cigarette. That is to say, you need to pay at least 70 yuan of tax on the 100-yuan cigarette you bought. The more expensive you smoke, the more tax you pay. That’s not enough.
According to the report on the health hazards of smoking in China issued by the Ministry of Health of China in 2012, the average life expectancy of smokers is 10 years shorter than that of non-smokers, that is to say, smokers not only pay heavy taxes, but also reduce the national pension financial expenditure. This is the paradox of the state monopoly of cigarettes. On the one hand, it is important to make profits and taxes, on the other hand, it is impossible to make publicity and promotion, because smoking will reduce the national physique.
Since 2015, China’s cigarette production has shown a downward trend. The decline in 2015-2018 was 0.8%, 8%, 1.6% and 0.4% respectively, while the cigarette production increased by 1.6% from January to November 2019.
As the smoking control measures in public places become more strict, the scope of implementation is becoming wider and wider, and people’s awareness of healthy life is improved, the number of smokers will decline in the future. In order to deal with this situation, the best way is to open up foreign markets.
In 2018, the wholly-owned subsidiary of China Tobacco was listed in Hong Kong, with the main purpose of participating in the global cigarette market competition and earning money from smokers all over the world. The history of cigarettes is not long, but it has quickly swept the world. The reason why cigarettes, which are harmful to human health, are legal in the social structure and economic system of the world, besides tax factors, there are more human considerations behind them.
On January 17, 1920, the United States once issued a prohibition on alcohol. According to this law, it is illegal to manufacture, sell and transport beverages with alcohol content more than 0.5%. Drinking or holding a banquet with friends can be fined up to $1000 and imprisoned for half a year. Only people over 21 years old can buy wine, and they need to show their age certificate, and they can only buy wine in limited places. This short-lasting abstinence campaign can be regarded as a vigorous social experiment, but the results of the experiment run counter to the original intention of the experiment. Not only did people not improve their moral standards because of abstinence, but also the crime rate in American society increased sharply.
In the film”Godfather”, the Godfather Corleone family made a fortune by selling illicit liquor during the prohibition period. After the formal market was banned, the underground black market began to flourish. Many American historians believe that the root cause of the rampant gang activities and frequent violence in the United States in the early 20th century is the prohibition of alcohol. I’m afraid the only positive legacy of the American prohibition law is to let us understand that banning a certain way of life is not feasible.
In retrospect, smoking is prohibited and cigarette production is prohibited. The first dissatisfied person may not be others, but the majority of smokers.
Burn yourself and illuminate others, which is a true portrayal of smokers. Everyone has the right to make their own choices, but this spirit is summed up in Jin Yong’s words as”the great Xia smokes for the country”. It is comparable to a group of shareholders who”protect the country”.
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