Bangladesh Tobacco Tax Proposal 2022-23

Bangladesh is one of the largest tobacco consuming countries in the world.

• 35.5% of people 15 years and older in Bangladesh consume tobacco. This is the 9th largest prevalence of smoking out of 109 countries with available comparable prevalence data.Tobacco use in Bangladesh is deadly and costly. ,
  • In 2018, tobacco use killed almost 126,000 people.
  • The total economic cost of tobacco use from lost productivity and direct healthcare costs of smoking related illnesses was estimated at BDT 305.6 billion in 2017-18, while tobacco tax revenues from the Supplementary Duty and VAT were BDT 228.1 billion in 2017-18.
  • The adverse effects of tobacco cultivation on the environment and the livelihoods of farmers are enormous.
  The current tobacco tax structure in Bangladesh is complex and is not adequate to discourage tobacco use :
  • It is a complex multi-tiered ad-valorem excise tax which includes large variations in tax rates depending on:
  – the type of tobacco product (cigarettes, biris, and smokeless tobacco);
  – the product characteristics (filter or without filter); and
  – the cigarette price band (low, medium, high and premium priced brands);
  • The multi-tiered tax system for cigarettes has resulted in:
  – cigarettes remaining cheap and affordable;
  – smokers switching to cheaper cigarettes instead of quitting;
  – stable cigarette sales per adult in recent years;
  – a relatively constant cigarette smoking prevalence in recent years.
  • Low taxes and prices on biris and smokeless tobacco keep these products highly affordable and their prevalence high.
  Raising taxes in Bangladesh would save lives while increasing government revenue.
  • The most effective way to reduce tobacco use is to raise the prices of all tobacco products through tax increases that lower their affordability.
  • Higher prices discourage youth from initiating tobacco use and encourage current users to quit.
  Focusing on the following actions will likely have the most impact in decreasing tobacco use prevalence in Bangladesh:
  • Shifting from an ad valorem to a specific tax system that would be periodically adjusted for inflation and income growth to achieve health goals and predict revenue more effectively.
  • Substantially increasing the tax and price of cigarettes in the lowest tier, which captures the bulk of the market with a market share sharply increasing from 25% in 2006-07, to 75% in 2020-21.
  • Substantially increasing the tax and price of biris to reduce the gap with the cheapest cigarettes and to discourage switching between products.
  • Improving the enforcement of tax policy on smokeless tobacco and exploring other non-tax measures that can amplify its impact, such as standardized packaging.

If the Government of Bangladesh reforms the current cigarette tax system following the recommendations in FY 2022-2023, it would achieve the following:

• Reduce the prevalence of cigarette smoking from 15.1% to 14.0%;
• Encourage nearly3 million adults to refrain from smoking and deter more than 895,000 youth from smoking initiation;
• Save the lives of more than 445,000 current adults and nearly 448,000 current youth from premature deaths in the long term;
• Generate nearly BDT 396 billion in tax revenue adding about BDT 92 billion in additional tax revenues from the Supplementary Duty, Health Development Surcharge and VAT on top of the expected collection for FY 2021-2022, which is an increase by 30% of current tax revenue from cigarettes in the first year.

• Increasing cigarette prices more at the LOW tier will help relatively lower income smokers who are more likely to smoke brands from the LOW tier to quit and at the same time limit the ability of smokers to substitute to cheaper brands when prices increase in the higher price tiers.

 

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