The Financial Express

Reforming tobacco tax to counter the misery of Covid-19

Evaly and Fianancial Express Evaly and Fianancial Express
Reforming tobacco tax to counter the misery of Covid-19

At this time of unprecedented human misery all over the globe, there is the crucial need to bring changes in our lifestyle. With the corona pandemic sweeping across countries, tobacco use has again come under spotlight. As both direct and passive tobacco smoking is considered risky for acute respiratory infections, it has been identified as a specific risk factor for Covid-19 by the World Health Organization (WHO). Since smoking increases the risk of viral lung and throat infections, and suppresses immune function, it increases the likelihood of worsening the condition of tobacco users if they are already infected by coronavirus. In addition, many tobacco users suffering from cardiovascular disease, diabetes, chronic respiratory disease and cancer are susceptible more to serious illness or death from Covid-19. Therefore, it is very important to minimise the risks associated with tobacco use in the current coronavirus pandemic.

As high as about 37.8 million adult population use tobacco in Bangladesh. Among them non-smoke tobacco users are about 22.0 million and smokers are 19.2 million. In Bangladesh, the prevalence of tobacco use among students in the age group of 13-15 years is 6.20 percent, which is a matter of grave concern. Nearly 126 thousand people experience untimely death every year due to tobacco use. The current tobacco tax structure and trend of real price of tobacco of Bangladesh (nominal price adjusted for GDP) is very complex and it is not strong enough to discourage the use of tobacco.

The current tax policy seems a favourable approach to multinational tobacco companies as reflected in the 'great arrival' of Japan Tobacco in the market. The supplementary duty is not being increased on high and medium brand cigarettes of these companies, which gives more than one-third of tax revenue from cigarettes to the public exchequer. When only price is raised without increasing supplementary duty, it means that the additional profit would go to the pockets of these companies.      

Despite the Prime Minister Sheikh Hasina's clear instructions to formulate a strong and simplified tobacco tax policy, it is still not being formulated for more than a half decade. It seems that there might be a vested interest group which does not want a strong tobacco tax policy.

Bangladesh is one of the top countries in the world where cigarette is the cheapest. A recent calculation of Progga (Knowledge for Progress) reveals that affordability, measured by Relative Income Price (RIP), has increased for premium, high and medium brand of cigarettes between 2015-16 and 2018-19. The absolute number of cigarette smokers has increased by 1.5 times between 2009 and 2017, which may be due to higher affordability of cigarettes.  

Another serious concern is the high prevalence of tobacco use among the poor in Bangladesh. Tobacco-using households have to spend significantly higher amounts on household expenses than the non-users. As tobacco use is associated with medical cost and income erosion due to sickness and loss of productivity, it also compels the households to spend less on nutrition and education. In the Covid-19 crisis, the income of poor households has already declined significantly, which would be very difficult to recover. Therefore, it would be imperative to let them lessen tobacco use.

Keeping this context in mind, there is a need for introducing new price and tax measures in the upcoming budget 2020-21, which would help reduce tobacco use. The first measure would be to introduce reform in the price slab of both cigarette and bidi. If the number of price tiers can be reduced to two (high and low) from the existing four slabs and price difference can be made significantly high, then it would work against switching and help reduce cigarette smoking. Similarly, price tiers of filter and non-filter bidi may be abolished.      

Specific duty should be introduced on all tobacco products. It will help increase the government's revenue and reduce profit margin of the tobacco companies. Specific duty should be imposed on all tobacco products including bidi, jarda and gul. It would help simplify the complex tax regime on tobacco products and the first step towards transforming it into international standard. Initially, a token amount of specific tax can be imposed, which can be increased gradually over time.   

A strong and simple tobacco tax policy should be formulated at the earliest. It should be aimed primarily at reducing tobacco consumption so that Bangladesh can achieve the target of 2040 to become a tobacco-free country.

The second objective would be to increase government's revenue since the price-inelastic nature of most of the tobacco products makes it difficult to reduce tobacco consumption overnight. The tax policy must be prudent enough so that additional revenue can be generated by the government along with reduction of tobacco use.

To sum it up, the following recommendations can be suggested for the upcoming budget 2020-21:

• All tobacco products must be subject to a certain amount of specific duty. To reduce the easy availability of tobacco products, specific duty needs to be increased regularly in line with inflation and growth of per capita income;

• Supplementary tariffs and price gaps between different tobacco products and brands may be reduced to curb the opportunity for tobacco users to change brands and tobacco products;

• To simplify the taxation process, existing divisions between tobacco products (filter / non-filter bidis, cigarette price tiers, separate retail prices for jorda and gul, etc.) should be abolished;

• All smokeless tobacco products should be brought under the tax net;

• All tobacco products must be marketed in equal quantity (number of sticks and weight) in packets/containers;

• Production, import and marketing of all types of e-cigarettes and heated tobacco products should e prohibited;

• Tobacco tax administration should be strengthened with strict licensing and tracing system, providing for punitive action for tax evasion;

• Finally, 25.0 per cent export duty on tobacco products will have to be reinstated.

Above all, price of all tobacco products must be increased significantly. It would help discourage tobacco consumption and avoid risk of getting infected by Covid-19. These measures would also increase tax revenue of the government, which can be utilised on treatment of Covid-19 patients and relief activities for the poor. Thus, tobacco price and tax measures would be important fiscal measures to fight the greatest misery of the present day.

Mahfuz Kabir, PhD is Research Director at Bangladesh Institute of International and Strategic Studies (BIISS).

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