Impact of Price and Tax Changes in the National Budget on the Wholesale and Retail Prices of Tobacco Products (Cigarette and Bidi): A cross sectional survey -

Impact of Price and Tax Changes in the National Budget on the Wholesale and Retail Prices of Tobacco Products (Cigarette and Bidi): A cross sectional survey

Introduction

Bangladesh is one of the countries in the world where tobacco products are available at low prices. As a result, the rate of smoking among young people is increasing alarmingly. At the same time, the death toll from tobacco-related diseases is on the rise. According to the World Health Organization, tobacco products, including bidi-cigarette smoke, contain more than 7,000 harmful chemicals1, including DDT, carbon monoxide, arsenic, methanol, alkatra, and nicotine, of which 43 are directly linked to cancer.

Worldwide, smoking kills one person every 6 seconds and more than 8.2 million people every year.2 Of these, 7 million people die directly from tobacco use and 1.2 million die from second-hand smoke. Of these, 0.161 million people died in Bangladesh. At present, 80 percent of the world’s 1.3 billion tobacco users3 are from low- and middle-income countries.4

The World Health Organization (WHO) drafted the International Tobacco Control Convention Framework Convention on Tobacco Control (FCTC) in recognition of the dangers of smoking. It effectively bans all forms of tobacco control campaigns, eliminates all smoking in public places and public transport, issues pictorial health warnings on tobacco products, including cigarettes, actively supports tobacco growers in alternative crop production, and the imposition of high taxes and price increases on tobacco products. According to a study by the World Health Organization, a 10 percent increase in prices would save 42 million people from smoking and save the lives of about 9 million people, especially in developing countries.5

At the same time, various international studies have shown that raising taxes on tobacco products not only increases revenue but also reduces government spending on health and reduces smoking. This image has already been noticed in different countries of the world including Australia, Thailand, Norway, and Singapore. As a result, it is necessary to impose high taxes on tobacco products regularly every year, but it is not possible in Bangladesh. The main reason for this is non-implementation of specific taxation system on tobacco products.

Bringing all tobacco products including white leaf, jorda, gul under the tax and fixing the minimum price of all tobacco products including bidi-cigarettes will have a direct impact on the consumer. This needs to be implemented quickly. At the same time, keeping in line with inflation, it is necessary to increase the tax on all tobacco including bidi-cigarettes every year. Besides, a policy has to be formulated to increase the tax on tobacco products every year.

Although the prices of nominal tobacco products increase in Bangladesh every year, only tobacco companies benefit from it. If the production doubles, the profit increases at least 5 times.6 As a result, Bangladesh has not been able to reduce tobacco related deaths due to faulty and complex tobacco tax structure. The most surprising thing is that in the last few years, the prices of daily necessities have increased several times but the prices of tobacco products have not increased at that rate. From which it is clear that the use of tobacco among the people is increasing due to the availability of cheap tobacco products.

In Bangladesh, the price and tax rate of tobacco products are fixed in the budget every year. In this context, there has been no research in the country on how much tobacco companies fix the price of tobacco products and at what price they are sold in the market. By conducting this study in the financial year 2021-22, an attempt has been made to get the answer to the above question. We think that this has made it possible for the tobacco company to unveil its pricing and marketing strategy.

OBJECTIVE

Overall Objectives:

Determining the impact of price change in the budget of FY 2021-22 on the market price of tobacco products (cigarettes and bidis).

Specific Objectives:

  • Investigating the impact of the budget on the market prices of tobacco products.
  • Determining the difference between Maximum Retail Price (MRP) printed on the package and actual selling price.
  • Exploring the tobacco companys’ strategies in resetting the prices of tobacco products in the face of rising tax rate and price.

METHODOLOGY

The research has been        conducted following quantitative research methods.        Information has been collected from the 48 retail outlets (points of sale vendors) of a total of 12 cities/towns. This includes the divisional cities of Dhaka, Barisal, Khulna, and Mymensingh as well as two additional district towns from each of the divisions. Data has been collected from a total of four retail outlets in each city. These retail outlets have been selected from the public places as defined by the Tobacco Control Act.

 

Summary of the Study

A total of 25 brands of cigarettes were found in the 48 outlets. Of all these brands, 4 brands belonged to the premium tier, 5 brands belonged to the high tier, 5 belonged to the middle tier and 11 were from the low tier.

All of the 48 retail outlets selected for this study have reported that they mostly sold cigarettes as single stick. At the same time, all the 48 outlets sold the 20-stick cigarette packs too. Besides, 34 outlets (70.8%) have reported selling 10-stick cigarette packs and 29 outlets (60.4%) have reported selling 12-stick cigarette packs (Benson, Benson Light, Benson Switch, Goldleaf).

On the other hand, filtered bidis were found in only two outlets (4%) and unfiltered bidis were found in 16 shops. Filtered bidis were found to be sold in 20-stick packs and unfiltered bidis were found to be sold in 25 sticks packs.

In the 2021-22 fiscal year, the minimum price of 10-stick premium tier cigarettes was fixed at BRT 135 by government. According to this pricing, the minimum price of a 12-stick pack should be BDT 162 and a 20-stick pack should be BDT 270. According to the data collected in the survey, the maximum retail price printed on the 20-stick cigarette pack of premium tier brands (Benson, Benson Switch, Benson Light, and Marlboro) were BDT 270. But the retail seller himself has to pay BDT 269.98 on an average for a pack to the company representative and/or local wholeseller. And they are selling each 20-stick pack for BDT 294.29.

Although the maximum retail price is BDT 162 printed on a 12-stick pack, retailers are buying at an average price of around BDT 162 (161.90) and selling at an average of BDT 172.85 which is 7% higher than the MRP. In the case of selling the sticks as a single unit rather than in a pack, the price of each stick is being kept at 15 BDT.

According to national budget of FY 2021-22 the price of 10 sticks high-tier cigerette is BDT 102. Accordingly, the price of 20 sticks is BDT 204 and the price of 12 sticks is BDT 122.4. The study found, the maximum retail price printed on 20 sticks packet is BDT 204. But the average purchase price of a retailer is BDT 204.30 and its average selling price is BDT 221.40. Similarly, the maximum retail price printed on a 12 sticks packet is BDT 122.4. But retailers are buying at an average of BDT 122.58 and selling at an average of BDT 130.77.

On the other hand, wholesalers are buying 20 sticks packet of this tier at an average price of BDT 203.98 and selling it to retailers at an average price of BDT 205.45. The price of 10 sticks cigerette of the  medium tier were unchhaged at BDT 63 in the current FY like the previous FY. As such, the price of 20 sticks is BDT 126. Analysis of the data obtained shows that the maximum retail price printed on a 20 sticks packet of this tier is BDT 126. But retailers are buying at an average price of BDT 126.05 and selling at BDT 135.89.

Similarly, the maximum retail price printed on a 10 sticks packet is BDT 63. But retailers are buying at an average price of BDT 63.04 and selling at BDT 68.83. At this tier, the average purchase and sale price of a 20 sticks packet of a wholesaler is around BDT 126 (125.83) and 127 BDT (127.12) respectively.

In the FY 2021-22, the price of 10 sticks cigarettes for the lower tier has been kept at BDT 39 same as the last FY. As such, the price of 20 sticks is BDT 78. The maximum retail price is BDT 78 printed on a 20 sticks packet but it is being sold at an average of BDT 96.49 for a 20 stick packet and the retailer is buying at an average of BDT 78.05.

Although the maximum retail price is BDT 39 printed on a 10 sticks packet, retailers are buying at an average price of BDT 39.04 and     selling at an average price of BDT 46.13. The average purchase price of a 20 sticks packet of wholesalers are BDT 77.98 and the    average selling price are Tk BDT 79.16.

The maximum retail price of premium tier cigarette printed on a 20-stick packet is BDT 270, but the average selling price found in the market is BDT 294.29. As such, if taxes could be levied on the    highest retail price, the government could get a further tax of about BDT 583 crore from premium tier cigarettes. Similarly, it would have been possible to collect about BDT 400 crore from the high tier, about BDT 337 crore from the medium tier and BDT 3661 crore from the lower tier.

Recommendations

  • Ad valorem tax system needs to be replaced with specific tax system and the market sales of each product should be monitored digitally.
  • Digital systems should be introduced in tax  collection;
  • The cigarette taxation system should be brought to one tier instead of multiple tier;
  • The retail sale of single-stick cigarettes and bidis should be banned. Because the government is losing huge revenue and the tobacco consumers are also being encouraged through this practice.
  • Punitive measures must be taken to prevent tax evasion;
  • A national tobacco tax policy needs to be formulated to tackle the overall issues related to tobacco control and build a tobacco free Bangladesh by 2040.

 

Conclusion

The government seems to be quite sincere in realizing the declaration made by Honorable Prime Minister Sheikh Hasina to make Bangladesh tobacco-free by 2040. However, we are far behind in taking the necessary initiatives that should be taken in achieving this goal within the expected timeframe. There is no alternative to adopting and implementing a tobacco tax policy as soon as possible to eliminate the use of tobacco by 2040. Simultaneously, it is crucial to stop the unwarranted interference of tobacco companies in the government’s tobacco policy in the interest of saving the country and the lives of its people. Besides, it is also essential that the government withdraws its stake in the tobacco companies and look for alternative sources of revenue from them. At the same time, the government has to implement various schemes to create new and alternative jobs for the tobacco farmers and motivate them to cultivate other vegetables rather than tobacco.

References

  1. https://archive1.ittefaq.com.bd/print-edition/drishtikon/2015/06/02/52349.html
  2. https://www.jagonews24.com/health/news/563318
  3. https://cutt.ly/CUV1SqK
  4. https://www.who.int/news-room/fact-sheets/detail/tobacco; retrieved on 14.10.2020
  5. https://www.paho.org/hq/dmdocuments/2010/Cost-effectiveness%20of%20price%20increases.pdf
  6. 6. https://bit.ly/2IE2uVa; retrieved on 14.11.2020

 

To Read the full research paper, please click the link below:

Bangla_full report_Impact of price and tax changes in the national budget on the tobacco products.

Ibrahim Khalil

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