Tobacco taxation and Bangladesh: some recommendations

Tobacco is a man-made menace the world is going through for decades. Bangladesh is very much within the risk arena of this menace. The country is listed among the world’s top 10 tobacco-consuming countries. According to Global Adult Tobacco Survey (GATS) 2017 (Report Published in 2020), 37.8 million people consume tobacco in one form or another in Bangladesh. The size of the smoking population is 19.2 million, and that of the smokeless is 22 million. Among the smoking population, around 15 million use cigarettes, while another 5.3 million use biri. These numbers undoubtedly establish why Bangladesh is still within the list of high tobacco-burden countries in the world and hence tobacco should be a serious cause of concern for public health protection.

How to get control over the prevalence and help the country to get rid of the epidemic of tobacco?-- is by far the most discussed question among the tobacco control researchers and policymakers of the country. It is well recognised that tobacco price-increase can control its demand. There is also a unanimous consensus that as a fiscal regulatory mechanism, “tobacco tax” is the most crucial tool to fight against the high prevalence of tobacco use. Considering the country context, in Bangladesh, the importance of the tax and its effective design along with efficient implementation is of many folds. In addition, it is widely discussed and accepted that to make the tobacco tax effective, it has to be consistently adjusted with the “inflation rate” and “income growth” of the country. It goes without saying that if affordability remains unaffected with the changes in tax rate and structure, then the respective fiscal regulation would be meaningless. Bangladesh being one of the first signatories of the World Health Organisation (WHO) Framework Convention on Tobacco Control (FCTC), is committed to controlling tobacco use. What actions were taken on following the golden rule of tobacco control, i.e., raising tobacco tax and price in the last two decades? In Bangladesh, tobacco price, along with tobacco tax, has been rising in the last two decades. Despite that, the prevalence of tobacco did not come down to a reasonably acceptable level. Bangladesh is among the very few countries around the world with the highest level of political commitment for making the country tobacco-free by 2040.

The question, therefore, is-- what could be the underlying reason for having a high prevalence while following the golden rule of tobacco control? The answer can be discussed from various perspectives. However, limiting the focus only to tax leads to the answer to the design and implementation flaws of tobacco tax instruments in Bangladesh.

Tobacco tax is multi-tiered and based on ad valorem. In the past years tax and price-increase in low tier compared to others was not sufficient to address the high prevalence and consumption at that tier.  This particular tier, in combination with the medium tier, has the highest level of market share.  More specifically, around 84 per cent of the total cigarettes supplied in the country comes from the “Medium” and “Low” price tier and the rest 16 per cent is attributed to the “High” and “Premium” price tier. Realising this, most of the tobacco manufacturers introduced their new brands in the low tier expanding the production of this tier. This helped them take full benefit of the tiered tax system and undermine the national tobacco control efforts.

      According to WHO Report on the Global Tobacco Epidemic 2021, out of 169 countries around the world that implemented tobacco excise tax, 40 countries (23.67 per cent) relied on ad valorem tobacco tax while the rest, i.e. 129 (76.34 per cent) depended either solely on specific tobacco excise or mixed tobacco excise (mix of ad valorem and specific). Apparently, countries are increasingly relying on or moving towards the implementation of specific taxes for tobacco control and mounting fiscal revenue. More importantly, 138 countries follow uniform excise for tobacco, while Bangladesh is among the very few who still rely on the tiered or varying tobacco tax. As the country is following an ad valorem multi-tier tax for 10 sticks cigarette pack currently, administering the tobacco tax is an extra challenge. For better tax administration and tax governance, this needs to be simplified.

Bangladesh is currently in its era of economic transformation with a political commitment to sustaining high economic development. Better design of tobacco tax and its efficient administration and proper governance will ensure higher revenue earning that can contribute to the goal of sustainable economic development, and help curb the menace of tobacco.

In order to achieve the national target of making the country “Tobacco Free by 2040”, the tobacco control initiatives should be strengthened and made consistent with the national fiscal stance. The current tobacco tax structure as well as the tobacco tax administration, have certain drawbacks. For instance, the price dispersion among the different cigarette price tiers is considerably high, allowing smokers to switch rather than quit. In addition, the ad valorem nature of the current excise tax creates the opportunity for the tobacco industry to design their brands and products targeting a particular segment of tobacco. As a result, the government is receiving only a small portion of the upward adjustment of the base price (Market Retail Price (MRP)) of tobacco. Therefore, it is high time to shift the tobacco tax system towards a “specific excise tax”, reducing the number of price tiers and thus making the tobacco tax structure as simple as possible.

S M Abdullah and Rumana Huque are Faculty, Department of Economics, University of Dhaka and PhD Researcher, University of York, UK