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The Financial Express

Curbing tobacco market through reshaping regulatory policies


Curbing tobacco market through reshaping regulatory policies

Bangladesh is currently the eighth-largest tobacco market in the world. Cigarette production is increasing at a rate of 2 per cent per annum. Bangladesh is one of the largest tobacco consumers in the world with 37.8 million adults aged 15 years and above. It means about 35.3 per cent of the country's population is consuming tobacco products, according to the Global Adult Tobacco Survey (GATS) 2017.

However, there is a lack of proper monitoring and evaluation in terms of regulating the tobacco industry. The tax structure for tobacco products is also riddled with loopholes. In this context, it is extremely crucial to shed light on the policy lapses in the tobacco industry. The revision of the existing policies and proper enforcement of the policies can bring the tobacco market under control.

REDEFINING TOBACCO TAXATION MECHANISMS: The taxation mechanism of all types of tobacco products highly matters as it influences the prices of the tobacco products in the market which has implications on public health and government revenue. In Bangladesh, there exists a very complex multi-tiered ad valorem tobacco -tax system. The price of cigarettes is determined according to four-tier cigarettes categorised by the government -- premium, high, medium, and low. The tax base and rates vary based on the tiers.  Unfortunately, this differential tax mechanism fails to keep the tobacco market in check as it opens opportunities for product substitution, that is, a person can easily switch from a high or medium-tier cigarette to a low one since the price does not increase similarly across all tiers of the cigarette.

Currently, the retail price that the consumers have to pay to buy cigarettes in Bangladesh is much lower compared to many developing countries. Historically, the tax base of tobacco products in the country has been very low. This is especially true in the case of the low-tier cigarettes and smokeless tobacco products (SLT) such as zarda and gul. The current market structure of cigarettes reveals that around 84 per cent of the total cigarettes supplied in the country comes from the "Medium" and "Low" price slab and the rest 16 per cent is attributed to "High" and "Premium" price slabs. However, there has not been any change in the proposed price (BDT 39) and supplementary duty (SD) of the low-tier cigarette (57 per cent of MRP) in the proposed budget for the year 2021/22. The price and SD of the medium-tier cigarettes also remains the same as last year.

Though the prices of high and premium-tier cigarettes have been increased marginally, there is no change in the SD (65 per cent) compared to last year. This will have a limited impact on the consumption of expensive cigarettes. The prices and tax rates of biri, zarda, and gul have also not been changed in the proposed budget. Such a situation does not do much to dissuade consumers from the consumption of tobacco products. The taxation proposed in the budget will not reduce consumption of low and medium-tier cigarettes as no price and tax change have been essentially proposed. It also keeps the option open for high and premium-tier cigarette consumers to easily switch on to a medium or low-tier cigarette. And when consumers switch to cheaper brands in such a manner, the government also loses high levels of revenue.

Sometimes, the tobacco companies use this tier system to evade taxes. For example, a tobacco company can easily shut down a brand of a medium-tired cigarette and release a similar product under a different brand name in low tier by just changing the price marginally so they have to pay lower taxes. Many tobacco companies are evading taxes by taking advantage of the multi-tiered taxation system and lack of proper monitoring by the government.

NECESSITY OF STRINGENT GOVERNMENT POLICIES: The government of Bangladesh has its share in a multi-national tobacco company and a number of government officials hold positions on the board of the company. This poses a clear conflict of interest. It also violates the WHO Framework Convention on Tobacco Control of which Bangladesh is a signatory. After the independence of Bangladesh, there were plans to nationalise the big industries which resulted in acquiring shares in the cigarette company. But since no such plans exist now, there is no point in having a share or government presence in tobacco companies.  If we want to impose stricter taxation on tobacco products, there is no alternative to curbing the influence of the tobacco industry on the government. They must stop consulting the tobacco industry about tobacco leaf pricing, divest its shares in the tobacco industry, and ban all forms of tobacco-related CSR programmes. The honourable prime minister of Bangladesh has set a goal that Bangladesh will be tobacco-free by 2040. The government has also started to levy a 1 per cent health development surcharge (HDE) on all tobacco products. The government is committed to reaching that goal but they need to do more.

It is of absolute importance that the government move towards a uniform specific tax structure and reduce the number of tax tiers. This simplifies the tobacco tax-system and makes it easy to administer. With a specific tax system, a regular increase in the price of tobacco will reduce consumption and generate high revenues. The consumption of tobacco cannot be controlled without significantly increasing prices of all types of cigarettes and other SLTs. The government should digitise the monitoring system by adopting unique identifiers (i.e.: barcodes) on the cigarettes and also provide adequate training to the personnel involved in the monitoring. These steps can play a crucial role in reducing tax evasion by companies. Similarly, there should be strict regulation and monitoring of  Biri and SLT products so they can't evade taxes. Besides, the relevant authorities should also strictly monitor advertising strategies that tobacco companies undertake in the name of CSR activities.

Tobacco cultivation also poses a serious threat to the environment and causes serious diseases to the farmers. But the good thing is that the government of Bangladesh has drafted a tobacco cultivation control policy to limit tobacco farming. The policy targets to increase the production of food crops and dissuade them from tobacco farming. They plan to do so by giving them easy loans and incentives for fertiliser, seeds, and other farm inputs and equipment so that transition can be done easily to the cultivation of other types of crops.

CRAFTING SMARTER ANTI-SMOKING CAMPAIGNS: Although the tobacco industry cannot market its products openly in any form of media due to existing tobacco laws, they have found smarter ways to promote or encourage smoking. We can often see characters in the movies and television shows smoking. It results in encouraging young people to indulge in cigarette smoking. The anti-smoking awareness programmes in the country are very traditional and mostly limited to human chains, rallies, and webinars. There are pictorial warnings about health hazards in the cigarette box. But it does not help much since it is allowed to buy single sticks and most people do not buy whole boxes. As such, they do not come across the warnings. The organisers of the awareness programmes and campaigns need to rethink their approach to combat these issues. Advocacy campaigns should be conducted to discourage filmmakers from showing smoking onscreen. To build national consensus regarding the harmful effects of smoking, social media platforms should be widely and smartly used. Youth idols can be engaged in making people aware of the deadly consequences of smoking. There should also be programmes to assist smokers to break free from their addiction. They should also make the most use of social media to amplify their message.

 

Dr Rumana Huque is a Professor of the Department of Economics, University of Dhaka.

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