Rethinking tobacco tax and price measures | The Daily Star
12:00 AM, April 03, 2019 / LAST MODIFIED: 01:04 PM, April 03, 2019

Budget FY2019-20

Rethinking tobacco tax and price measures

Tobacco use is a major public health concern in Bangladesh and all over the world. It is regarded as a leading cause of more than 30 fatal diseases in Bangladesh including oral and lung cancer, cerebrovascular diseases, coronary artery diseases and chronic obstructive pulmonary diseases. The country is one of the largest tobacco-consuming countries in the world.

According to Global Adult Tobacco Survey (GATS) 2017, currently about 35 percent (37.8 million) adult people use tobacco in Bangladesh. Around 22 million adult people use smokeless tobacco (SLT, viz. jorda, gul and tobacco leaf) and 19.2 million are smokers (cigarette and bidi). Among the tobacco users, extremely poor people (who can hardly bear the healthcare costs of tobacco-related deadly diseases) tend to use tobacco at a much higher rate than high-income people. The rate of SLT use is much higher among women than men. Growing tobacco addiction among teenage groups is also a matter of grave concern.

Around 126,000 people die every year due to tobacco-related diseases in Bangladesh. A recent study titled “Economic Cost of Tobacco Use in Bangladesh: A Health Cost Approach” reveals that the monetary value of healthcare costs and productivity loss due to tobacco use was Tk 305.6 billion, which was much higher than the government revenue generated from the tobacco industry (only Tk 228.1 billion). However, there are many other significant costs of tobacco production and use, such as loss of land productivity, environmental pollution and negative spillover effects on the health of non-users. Tobacco is regarded as “sin” and “demerit” products due to its multifaceted and manifold adverse consequences.

Tax and price measures are considered to be effective for reducing tobacco use, which is supported by empirical evidence. The WHO Framework Convention on Tobacco Control (FCTC) urges governments to undertake effective tax and price measures to curb tobacco use. In South Asian Speakers' Summit 2016, Prime Minister Sheikh Hasina pledged to “eliminate” (five percent) tobacco use in Bangladesh by 2040 and introduce a robust tobacco tax policy which is yet to be materialised. High prevalence of tobacco use is also regarded as a formidable barrier to achieving health-related Sustainable Development Goals (SDG 3 specifically). Unfortunately, little has changed in Bangladesh when it comes to tobacco tax and price measures, due to which the government has been losing potential revenue from this sector. And tobacco use has not been declining significantly. 

Ideally, tobacco tax should be set in such a way so that the price goes up and affordability decreases over time, i.e. share of tobacco cost goes higher as a proportion of the income of users. Nevertheless, an analysis done by Progga, an anti-tobacco alliance, using the relative income price method reveals that premium-, high- and medium-brand cigarettes became more affordable between 2015-16 and 2017-18, while affordability of low-brand cigarettes remained nearly the same. The country's per-capita income has increased by more than 25 percent during this time, while the price of cigarettes has not increased accordingly. Therefore, the number of cigarette smokers has increased by 1.5 million between 2009 and 2017.

Bangladesh's current tobacco tax and price structures are complex and old-fashioned, which must be substantially improved. In doing so, the following recommendations can be suggested for the upcoming budget.

First, the present ad valorem method (a tax based on the assessed value of an item) of tobacco tax (excise duty and VAT) should be substituted with a mixed method—that is, a combination of ad valorem and specific tax for improving efficiency of taxation and increasing price of all tobacco products.

Second, the price tiers of cigarettes should be reduced from four to two, i.e. lower and upper tiers. The maximum retail price (MRP) of the lower tier would be Tk 50 combining the existing low and medium tiers of Tk 35 and Tk 48 for a pack of cigarettes with 10 sticks. Supplementary duty (SD) on this tier should be 60 percent. Similarly, at the upper level, the MRP should be Tk 105 for a pack of cigarettes with 10 sticks with 65 percent SD. Specific duty of Tk 5 should be imposed on both the tiers.

Third, bidi's price and tax should be rationalised by abolishing filter and non-filter tiers. MRP of one pack of non-filtered bidi with 25 sticks should be Tk 35 with 45 percent SD and Tk 6 specific excise duty. And MRP of one pack of filtered bidi with 20 sticks should be Tk 28 with 45 percent SD and Tk 4.8 specific excise duty.

Fourth, tariff value should be abolished from SLT and mixed tax based on MRP should be introduced. The MRP of 10 gram of jorda should be fixed at Tk 35 and MRP of 10 gram of gul should be fixed at Tk 20 on which 45 percent SD should be imposed. The specific duty on these products should be Tk 5 and Tk 3, respectively. In Bangladesh, the use of SLT is the highest among the poorest and among women. The suggested price and tax measures will help protect this population from the health hazards of using jorda and gul.

Fifth, all tobacco products should have 15 percent VAT. The finance minister has indicated that VAT Act 2012 would be implemented from the next fiscal year and its rate would be 5, 7 and 10 percent, which is commendable. However, considering the demerits and devastating public health consequences, VAT on tobacco products should be retained at 15 percent. It can be done within the purview of Article 58 of the law which allows for provision of “special schemes for tobacco and alcoholic goods” for the National Board of Revenue (NBR) in setting the MRP and VAT for all tobacco products including SLT.  

Sixth, a simple and effective tobacco tax policy should be formulated with an initial period of five years, which will reduce tobacco use and increase government revenue.

Seventh, the finance minister has hinted at reducing corporate income tax. However, since tobacco is recognised as a demerit and a “sin” industry with devastating impact on public health, its corporate tax should not be decreased.

The proposed tax and price measures would encourage about 3.2 million adult smokers to quit smoking; reduce the use of cigarettes from 14 to 12.5 percent and bidi from 5 to 3.4 percent; help prevent the premature deaths of one million current smokers; and generate additional tax revenue ranging from Tk 66.8 to Tk 119.8 billion. Additional revenue from these measures can be used to offset the economic costs of tobacco use and finance public health as well as other developmental priorities to achieve the SDGs and our overarching Vision 2041.


Dr Mahfuz Kabir is Research Director of Bangladesh Institute of International and Strategic Studies (BIISS), Dhaka. Email: mahfuzkabir@yahoo.com


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