Taxing Tobacco: A Path to Healthier Lives and Stronger Economies in Bangladesh

• by lex
• September 7, 2023

Introduction

“A healthy Heart and a happy smile come to your life when you leave smoking”

The tobacco epidemic is one of the biggest public health threats the world has ever faced; killing over 8 million people a year around the world. More than 7 million of these dea

ths are the result of direct tobacco use while around 1.3 million are the result of nonsmokers being exposed to second-hand smoke. Around 80% of the 1.3 billion tobacco users worldwide live in low and middle-income countries where the burden of tobacco-related illness and the main barrier to healthier living in Bangladesh. So it is high time to reduce the consumption of tobacco by Taxing tobacco and  increasing tax on tobacco products. We find that many countries’ increases in cigarette prices (in the range of 25-100%) effectively reduce the number of smokers and the number of smoking-related illnesses and generate substantial new revenues. In statistics; while the tax rate is increased; which is reduced Tobacco deaths by over 27 million. Thus, large increases in the cigarette tax which is unusually attractive for public health, public finance and pro-poor health benefits.

Tobacco Use in Bangladesh

1. Bangladesh is one of the largest tobacco-consuming countries in the world; with over 46 million (43%) adults consuming cigarettes, bidis; smokeless tobacco and other tobacco products.

2.58% of all men and 29% of all women consume some form of tobacco; whether smoked or smokeless.

3. Youth tobacco use is a source of concern in Bangladesh nearly 7% of 13-15 year old’s use tobacco.

Impact of Tobacco Use in Bangladesh

• High rates of tobacco use contribute to a significant number of early deaths an
  

  

  d high healthcare costs. Each year, tobacco use kills 57,000 Bangladeshis —about one in six of all deaths among people 30 years and older.

• There are about 1.2 million cases of lung cancer, cerebra-vascular disease, coronary artery disease, chronic obstructive pulmonary disease and other tobacco-attributable illnesses in Bangladesh annually.
• The economic costs of tobacco use in Bangladesh accounted for over 3% of GDP in 2004.
• 51 billion taka was spent to treat diseases caused by smoking.
• Smoking-attributable lost productivity was 59 billion taka.
• Many people are going abroad due to medical treatment.

WHO FCTC

Honorable Prime Minister Sheikh Hsian announced making Bangladesh tobacco-free by 2040 at the first Southeast Asian Speakers’ Summit held in Dhaka. He also announced the formulation of a tobacco tax policy in line with the World Health Organization’s FCTC as the strongest step to reduce tobacco use. In order to implement this directive of the head of government, the government’s shares in tobacco companies should be sold and the government’s close relationship with them should be abandoned also increasing tax on tobacco products. Article 6 of the World Health Organization’s Framework Convention on Tobacco Control (FCTC) recommends that governments adopt tobacco tax policies as part of overall national health policies and increase taxes on tobacco products to reduce tobacco use. Higher taxes are one of the most effective ways to reduce tobacco use. Higher tax rates reduce tobacco use as well as increase revenue.

Tobacco Products Rate In Bangladesh

According to the Daily Star (5 April; 2023), Iqbal Masood Said “Tobacco products are relatively cheap and affordable in Bangladesh. The poor spend a larger share of their income on tobacco products than the rich and suffer more from tobacco use-related diseases. Instead of quitting, smokers are turning to cheap cigarettes. Medical expenses associated with smoking-related diseases push millions of families into financial crisis and dire poverty every year.”

Significant Initiative by Bangladesh Government for Reducing Consumption of Tobacco

Bangladesh must be applauded for the implementation of several tobacco control measures, notably mass health education awareness programs, advertising and promotion bans, explicit health warnings, policies on taxation, restrictions on smoking in public places, the formation of the National Tobacco Control Cell (NTCC) and the imposition of the Health Development Surcharge (HDS).

The Current Tobacco Tax Structure in Bangladesh

• A supplementary duty (excise tax) is imposed as a per cent of price. The supplementary duty varies significantly across tobacco products and brands. Cheaper brands have much lower tax rates than expensive ones.
• The cigarette tax structure is a tiered structure that imposes different ad-valorem based on retail price slabs.
• Bidis are taxed at a much lower rate based on a single “tariff value” set by the government.
• A VAT of 15% on all tobacco products is applied to all tobacco products.
• Excise taxes on cigarettes account for just over one-half of retail prices on average Bidi excise taxes account for approximately 10% of retail price. This falls well below the level in countries with strong tobacco control policies where excise taxes typically account for more than 70% of the retail price.

Importance of tax for reducing consumption of tobacco

Imposing Tax on tobacco products holds significant Importance for reducing tobacco consumption due to several key reasons:

Raising Taxes Saves Lives and Increases Government Revenue:

If Bangladesh adopted a uniform specific cigarette excise tax of 34 taka per 10 cigarettes and eliminated the existing multi-tiered ad-valorem structure, it would increase cigarette excise tax to 70% of average retail price of cigarettes. This tax would: encourage nearly 7 million adult smokers to quit. Keep over 7 million young Bangladeshis from starting cigarette smoking. Prevent almost 6 million premature deaths caused by cigarette smoking, and provide an additional 15 billion taka (200 million USD) in tax revenue. A uniform specific excise tax of 4.95 taka per pack of 25 bidis applied to retail price of bidis would reduce the number of adult bidi smokers by over 3.4 million. It prevents almost 3.5 million youth from taking up bidi smoking prevents nearly 2.4 million premature deaths related to bidi smoking, and generate 7.2 billion taka (87.5 million USD) in new bidi excise tax revenues.

Economic Deterrent:

Higher taxes directly increase the price of tobacco products, making them less affordable. This financial disincentive encourages individuals, especially price-sensitive groups like youth and low-income populations, to either reduce their consumption or quit altogether.

Behavioral Change:

Taxes can influence consumer behavior through the concept of price elasticity. As the price of tobacco rises, the demand tends to decrease. This shift in behavior can lead to reduced smoking rates, ultimately contributing to improved public health outcomes.

Public Health Benefits:

Taxation acts as a powerful tool to address the negative health impacts of tobacco use. By discouraging consumption, taxes contribute to a decrease in tobacco-related diseases such as lung cancer, heart disease, and respiratory disorders, leading to a healthier population.

Reduced Healthcare Cost:

A decline in tobacco use directly translates to lowers healthcare costs. Fewer individuals suffering from tobacco-related illnesses alleviate the burden on healthcare systems, allowing resources to be directed towards other pressing health concerns.

Revenue Generation:

Taxes on tobacco products generate substantial revenue for governments. This income can be channeled towards funding anti-smoking campaigns, public health initiatives, and cessation programs, further promoting awareness and support for quitting.

Youth Prevention:

Higher prices resulting from taxation make tobacco products less accessible and appealing to youth. This preventive effect can deter young people from starting smoking, helping to create a generation less inclined to pick up the habit.

Global Best Practices:

Numerous countries have successfully reduced tobacco consumption through taxation policies. Case studies of countries like Australia, France, and the UK demonstrate the positive impact of higher taxes on smoking rates and public health.

Strategic Control:

Taxation offers governments a regulatory tool to exert controls over tobacco consumption. By adjusting tax rates, authorities can steer consumption patterns and align them with public health objectives.

Incentive for Quitting:

For current smokers, higher prices due to taxes can motivate them to quit smoking. The financial burden of maintaining the habit becomes more pronounced, prompting individuals to seek cessation resources and support.

Reduced Second Hand Smoke Exposure:

Lower tobacco consumption leads to reduced exposure to secondhand smoke, benefiting not only smokers but also those around them, including non-smokers and vulnerably populations like children.

In conclusion, imposing taxes on tobacco products plays a pivotal role in reducing consumption by influencing behaviour, improving public health outcomes, and generating revenue for supportive programs. This approach offers a multi-faceted solution to tackling the complex issue of tobacco use while contributing to healthier societies.

Challenges:

Research has shown that tobacco companies have very close and mutually beneficial relationships with various government officials and high-ranking individuals. The government’s shareholding in tobacco companies allowed government officials to take this advantage. Although the National Board of Revenue has been requested to take initiatives to reform the tobacco tax structure at various stages, no initiative has been visible to date. Tobacco companies have been giving cash and other gifts to the NBR and other government officials involved in the tax reform process. Even foreign travel arrangements are made for them.

Due to the tired tax structure, users can easily switch to lower-tier cigarettes if the price of one tier increases. Because there is always an effort to keep the prices of low-end tobacco products within the purchasing power of tobacco users. Tobacco products are relatively cheap and affordable in Bangladesh. The poor spend a larger share of their income on tobacco products than the rich and suffer more from tobacco use-related diseases. Instead of quitting, smokers are turning to cheap cigarettes. Medical expenses associated with smoking-related diseases push millions of families into financial crisis and dire poverty every year.

Criticism:

However; the country has made significant progress in reducing tobacco consumption, but there remains a considerable number of challenges in reaching the desired level.

Firstly; only raising prices is not helping because the current ad valorem tax structure in Bangladesh is rigged against the interest of the people and favors the corporates. For instance, when the regulatory authority raises the price of a cigarette by Tk10, provided the Total Tax Incidence (TTI) remains the same at an arbitrary 70%, the government receives an additional Tk7 while the company gets an untaxed Tk3.  In Bangladesh, when price increases, it shifts consumer interest towards lower-tier cigarettes with lower prices and lesser taxes as a supplementary duty. Due to this permeable price tiring strategy, the volume of sales in the lower tier increases but tax collection does not rise proportionally. This ineffective taxation system allows the composition of the consumption to change across the tiers, keeping the overall tobacco consumption largely undeterred. Due to the shift in consumer behavior, tobacco companies reap profits while posing a significant risk to public health.

Secondly, Black Market or Illicit trade. Excessively high taxes can incentivize the growth of the illicit tobacco market, leading to a loss of tax revenue for the government and potentially exposing consumers to unregulated and unsafe products.

Thirdly; Smuggling and border issues. Bangladesh shares a boarder with countries where tobacco products might be priced differently due to varying tax regimes. This can lead to cross-border smuggling and undermining policy efforts.

Fourthly; Substitution Effect. If people cannot afford legal tobacco products due to high taxes, they might turn to cheaper, unregulated alternatives or other harmful substances. Tobacco Companies use this opportunity to increase their profits. This could undermine the intended health benefits.

Fifthly, Regressive Impact. Tobacco taxes can disproportionate affect low-income individuals, as they spend a larger share of their income on such products. This can potentially worsen income inequality and social tensions.

Recommendations:

1. In previous fiscal years, the budget did not include taxes to reduce tobacco consumption, which was really disappointing. Supplementary duty was increased marginally, while prices of low-end cigarettes, bidis and smokeless tobacco products were proposed to increase marginally. Due to the glut of low-end cigarettes in the market, the revenue of the government obviously decreases. Because a lower selling price means less revenue from lower-grade cigarettes. Apart from this, the government has been levying a health promotion surcharge of 1 per cent on all tobacco products for several years. Now is the time to increase the health promotion surcharge from 1 per cent to at least 2 percent and ensure its use in tobacco control.
2. The regulators must reassess how they evaluate the tax revenue generated by the tobacco companies. This revenue stream is simply a cost-mitigating mechanism for our public health expenditures, which sets it apart from other revenue sources from other sectors.

Thus the notion of granting social recognition to tobacco companies and tobacco moguls for being the ‘highest taxpayers’ in the country, and tobacco companies enjoying the same corporate tax rate as essential telecom sectors demand scrutiny and assessment of rationality.

3. Civil society- local non-profits, think tanks and academia- has actively voiced concern regarding the current tax structure and strongly supports the transition from the complex ad valorem multi-tiered tax structure to a more direct and effective single-tiered specific excise tax.
4. The Centre for Policy Dialogue (CPD), in its last Independent Review of Bangladesh’s Development (IRBD), has also recommended the NBR eliminate the tier system and impose a specific tax of Tk10 as supplementary duty (SD) per stick of cigarette instead of the existing Tk9.23, Tk7.21, Tk4.22 and Tk2.28 for premium, high, medium, and low tiers respectively.
5. Strengthen tobacco tax administration, improve Enforcement, and tax duty-free sales of tobacco products in order to reduce tax evasion and avoidance.
6. Increase taxes on all tobacco products to be equivalent to cigarette taxes and to reduce the use of these products.

Conclusion:

In conclusion; imposing taxes on tobacco products in Bangladesh has already played a significant role in reducing of consumption of tax. However, there are some lacking. Policymakers need to consider the all challenges and also take strong initiative to mitigate these challenges. Therefore, the policymakers must understand that the current tax structure must be changed to make the vision of a tobacco-free Bangladesh by 2040 come true. Only infrequent price increases under the ad valorem tax structure shift consumers from one tier to the lower tier but don’t have a substantial net decline in consumption.

Introduction “A healthy Heart and a happy smile come to your life when you leave smoking” The tobacco epidemic is one of the biggest public health threats the world has ever faced; killing over 8 million people a year around the world. More than 7 million of these dea ths are the result of direct…