The Financial Express

Why should we re-think tobacco tax structure?

| Updated: June 07, 2021 21:39:13

Why should we re-think tobacco tax structure?

With growing number of Covid-19 patients and the detection of black fungus patients, Bangladesh is going through a difficult period when public health has become a matter of grave concern. Thus, cry for greater investment in the health sector has become louder prior to the submission of the annual budget.

Given the health hazard the country is already facing, it has become essential to review the tobacco tax structure to avoid more health fatalities.

Let’s have a look at the current situation. In 2019, 126,000 people died of tobacco consumption, according to the Bangladesh Cancer Society. The number has risen to 161,000, as shows Global Tobacco Atlas 2020. The Global Adult Tobacco Survey 2017 found that one-third of the grown-up population in Bangladesh is addicted to tobacco. The rate of death due to this addiction is also rising.

In a pandemic-stricken world, the World Health Organisation (WHO) has advised people to keep their distance from smoking in order to keep their lungs in good shape and successfully fight the deadly virus.

However, Bangladesh is still one of the worst victims of tobacco consumption.

Availability of tobacco products at a cheaper rate is found to be a key reason for rampant tobacco consumption. Also, we have multi-tiered cigarette available in the market and a complicated tax structure which is also responsible for the situation. A research institute, Tobacconomics, working under the University of Illinois in Chicago conducted research on the tax structure of 170 countries and found that Bangladesh lags far behind in standard tax imposition on tobacco products.

However, introducing a tiered-specific excise with a uniform tax burden on all cigarette brands can help change the scenario. Countries like the Philippines and Moldova had reportedly been benefitted greatly from such tax structure.

Anti-tobacco practitioners suggest that imposing a 65 per cent specific excise tax on the final retail price can reduce tobacco consumption.

Under such a structure, the retail price in the lower tier should be Tk 50 for 10 sticks followed by Tk 32.50 as specific supplementary duty (SD). The retail price for 10 sticks in the medium tier should be Tk 70 and Tk 45.50 would be specific supplementary duty.

In short, the specific supplementary duty could be 65 per cent of final price in all tiers. A 15 per cent value added tax and 1.0 per cent health development surcharge should be applied to the final retail price of cigarettes in addition to the specific SD.

However, the tobacco industry people often argue that tobacco companies pay a heavy tax to the government and that increasing tax might disrupt the flow of revenue. Addressing this argument, Executive Director of Tobacco Control Research and Advocacy organisaion Ahmed Swapan Mahmud said, they pay the government two kinds of tax in three ways.

The first one is direct tax from their share of income, the second one is customs duty and the last one is VAT which is indirect tax,

“One of the leading tobacco companies paid the government Tk 22,630 crores as tax in 2019. Among this only Tk 1,082 crore was income tax,” he said.

He thinks, “If we are to pay indirect tax to the government then we can easily pay through some other products, rather than investing in something as harmful as tobacco.”

If there is a reform in tax structure, he argued, it will stop 800,000 youths from smoking and save the lives of nearly 390,000 adults and 400,000 youths from premature death. It will encourage 1.1 million adults to stop smoking.

A study showed that imposing specific excise tax will help the government earn additional Tk 34 billion tax revenue. It might also help reduce tobacco consumption to 14.1 per cent from the current 15.1 per cent.

Sharker Shams Bin Sharif, Communications officer of Campaign for Tobacco Free kids, said, “Increasing tax in 2021-22 fiscal year will save lives and increase the government revenue which might come as financial aid during the pandemic.” 

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