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Though the tobacco sector is one of the largest taxpaying sectors in the country, it has been a matter of concern for the government that the steep rise in cigarette prices can put a negative impact on tax collection.
For this reason, the government is more flexible to increase the tobacco prices slowly, a move that is widely criticised as a ‘misguided’ approach.
But anti-tobacco activists and researchers said such a move could hardly bring any impact on smokers due to an adjustment of tobacco prices with inflation. As income of consumers also increases, it has a negligible impact on their purchasing pow-er.
They said if their purchasing power is impacted, they frequently change the cigarette tier and continue their consumption. So, they have urged the government to increase the prices substantially at a time and reduce tobacco tiers.
One of the members of the National Anti-Tobacco Platform, using a tobacco tax simulation model, showed that the gov-ernment can earn more revenue although the hike of cigarette prices will result in a decline in tobacco consumption.
Abdullah Nadvi, director (research) at Unnayan Samannay, an economic think-tank in Dhaka, said that the people often forget about inflation that is turning the yearly price hike into an adjustment to the current year’s overall price situation for all products.
Using this simulation model, anyone can easily find real increase in cigarette prices, he said, adding that this model dis-pelled the fear of losing revenue from cigarette sales and also gave a prediction of reduced tobacco consumption.
While explaining the model, he said for example, the price of 10 sticks is Tk 100. If the prices increase a little, it will de-crease consumption to nine sticks while for drastically increased price (Tk 15), consumption would decrease to seven sticks.
“Let’s think that the price of a single stick increases to Tk 11 and suppose taxes remain the same at Tk 81 (Tk 65 excise duty, Tk 15 VAT and Tk 1 health duty surcharge), revenue for nine sticks, tax will be Tk 80.”
Again, for drastically increased price, revenue from sales would be Tk 105, and so the amount of taxes will also increase to Tk 85 for 10 sticks instead of Tk 81, he estimated.
It means that revenue increased and consumption decreased, he said, adding that you have to keep in mind that the whole portion of taxes and VAT are paid by consumers. Tobacco companies only paid some taxes like corporate taxes and taxes related to their income.
Philippines sets latest example
The Philippines, once a country among the 10 countries with the highest smoking rates in the world, now has been able to cut their tobacco users to over 10 per cent in over a decade.
The overall tobacco users in the country have dropped to 19.5 per cent in 2021 from 29.7 per cent in 2009, Congressional Policy and Budget Research Department (CPBRD) said in their recent publication this month, citing Global Adult Tobacco Survey (GATS) 2021 report. The rate was 23.8 per cent in 2015.
CPBRD is the office that is mandated to conduct policy and budget research to serve as an informational foundation to leg-islation and oversight of the government. It said the changes came after the government formulated the Sin Tax Reform Act-2012 that changed the tax structure drastically by imposing higher taxes on tobacco products, leading to higher prices.
At present, 65 countries, including the Philippines, Nepal, Sri Lanka and Malaysia have adopted specific excise while 63 countries, including India and Thailand, adopted both the specific and ad valorem tax method.
Bangladesh’s reverse attitude
According to worldpopulationreview.com, Bangladesh ranks eighth among top 10 countries with the highest smoking rates in the world.
In one of their analyses, PROGGA (Knowledge for Progress) blamed low prices of tobacco for the situation.
Analysing the top five countries ensured higher cigarette prices in the world has a common feature and that is the high tax ratio of prices.
According to WHO Report on the Global Tobacco Epidemic-2021, cigarette pack prices, total taxes and tobacco excise component as a share of pack prices are all lower in low and middle-income countries with average total tax as a propor-tion of price amounting to 51.2 per cent in low-income countries and 59.1 per cent in middle-income countries. This pro-portion reaches 67.4 per cent in high-income countries.
Bangladesh has an excise duty of 65 per cent right now, except low tier cigarettes. Progga said Bangladesh imposed tax equivalent to those five countries--Sri Lanka, New Zealand, Australia, Fiji and Bhutan-- ensured higher cigarette prices, but contradictorily it has one of the lowest prices in the world.
In South Asia, Bangladesh has the second lowest cigarette prices after Myanmar, it said. They blamed the faulty taxation system for the downward situation.
Eminent economist and convener of the National Anti-Tobacco Platform Dr Qazi Kholiquzzaman Ahmad said that the gov-ernment of Bangladesh has already imposed high tax on tobacco products. But to some extent, it has a little impact on to-bacco users.
“What we need is a jump in tobacco prices, and minimum prices of the lower tier cigarettes need to be higher (making excise duty the same for all tier cigarettes) to keep it out of reach of many,” he added.
Abdullah Nadvi told the Business Post: “Bangladesh should adopt a specific excise system. It will provide a win-win situation for them. The country will get more taxes and if the cigarette company increases per stick price, it will discourage newcomers.”
He said in specific taxation, it will include bidi on sticks, gul, jorda over weights. So, every product will come under tax net. The researcher said that many talk about workers involved in the sector. But it is true that the labour size is less than 1 per cent among the labour market engaged in formal job sectors. “So, altering their profession would not be that much harder,” he added.
PROGGA has observed that over 50 per cent tobacco users are taking smoke-free tobacco products and taxes from these products are very low, some 0.15 per cent of tobacco tax in FY21.
Former Governor of Bangladesh Bank Dr Atiur Rahman said that while taxes are necessary for the country, but health is more important. “The money we are spending on combating respiratory diseases is higher than the taxes received from tobacco products,” he said. He further added that it was noticed that Covid patients with respiratory complications who were tobacco users could hardly come back when they were admitted to ICUs.
He said the focus of the government is to ensure zero tobacco use in the country by 2040. And so, the goal is to prevent initiation of smoking by the young generation and promote cessation of it. Tax is the secondary target.
Assistant Professor (Respiratory Medicine) at Sheikh Russel National Gastroliver Institute and Hospital Dr Md Mostafizur Rahman said that smoking causes irreversible damages to lungs and also damages respiratory tracts severely. “A smoker is at risk two times higher for respiratory inflammation than non-smoker. Again, cigarette smokers are 20 times more likely to get lung cancer or die from lung cancer than non-smokers,” he added.
Dr Atiur also highlighted the issue, saying that there are many benefits of reducing the prices on a swoop. Revenue is increasing even though the number of users decreases. In recent research, it has been found that the government may have over Tk 9,600 crore additional taxes from the sector annually, only if the taxation system is reformed in a practical way, Dr Atiur added.
Dr Qazi Kholiquzzaman Ahmad mentioned that the government has revoked 25 per cent duty on exporting tobacco.
This is encouraging tobacco cultivation across the country. From various research and experiences, it has been seen that these tobacco farmers are getting sick with the environment prevailing in the cultivation land. So, the government should impose duty again, he said.
