Speakers for reducing gap between declared, market price

The government is losing revenue due to a substantial gap between declared and market prices of cigarettes, said speakers in a virtual discussion organised by the non-governmental research organization Unnayan Shamannay on Thursday.

They came up with the comment on a market analysis done by Unnayan Shamannay which was publicized through the virtual discussion titled “Impact of the Gap Between Declared Price and Market Price on Government Revenue”, said a press statement.

In the current tax structure, cigarettes are sold in four tiers and each of these tiers has a fixed minimum declared price. However, in reality, both single-stick cigarettes and cigarette packets are currently being sold at a higher price than the market price, they said.

However, cigarette companies pay taxes to the government according to the declared price. As a result, consumers are buying cigarettes at a higher price, but the government isn’t receiving any revenue from this additional expenditure, they stated.

The panellists of the aforementioned discussion session included Senior Research Fellow of the Bangladesh Institute of Development Studies (BIDS) Dr SM Zulfiqar Ali, Research Director of Centre for Policy Dialogue, Dr Khondaker Golam Moazzem and Chief Business Reporter of Ekattor TV, Sushanta K Sinha while Shaheen ul Alam, head of programmes, Unnayan Shamannay moderated the discussion session.

The results of the market assessment were presented by the Lead Economist of Unnayan Shamannay Robert Shuvra Guda. He stated that “Due to the gap between the declared price and the market price, the government is losing revenue worth of almost Tk 56.6 billion. We conducted the study by collecting data from cigarette sellers of Dhaka city, Rajshahi city and Sirajganj municipality.”

“For a 20-stick packet, consumers on average pay an additional eleven and a half takes for low-tier cigarettes, around fifteen and a half takes for medium-tier cigarettes, and around ten and a half takes for high-tier cigarettes. But the gap is biggest for premium-tier cigarettes, which have been observed to be sold for twenty-four takes more than the declared price on average. As a result, the government is losing a huge amount of potential revenue.”

Based on the results of this small-scale survey, some reforms were suggested for the taxation policy. Significant points of these suggestions were to set the minimum declared price above the current market price in the 2023-24 fiscal year, to bring the retail price of the low-tier and medium-tier brands at the same level, and instead of the current four-tier system implementing a two-tier system. These will on the one hand discourage the masses to smoke and on the other hand, it will enable the government to collect its due revenue.

During his speech, a panelist of the session Dr Khondaker Golam Moazzem praised Unnayan Shamannay and the other organisations active in the anti-tobacco campaign. He pointed out that alongside a change in the taxation policy of tobacco products, attention should also be diverted to the production and distribution of these products to reduce tobacco consumption. Mostafizur Rahman (Lead Policy Advisor, CTFK) stated that “If the retail price of low-tier cigarettes is increased then it will create pressure on the low-income households to reduce consumption of cigarettes.” Sushanta Sinha mentioned, “Every proposal should focus on strict laws and regulations. The taxation law must be made stricter so that if cigarettes are sold at a higher price than the minimum retail price, the government receives VAT and tax even from that.”

In his speech, senior research fellow of BIDS Dr SM Zulfiqar Ali stated that “This is a combined war, sale and consumption of tobacco products cannot be eliminated using only a single policy instrument like tax. Cigarettes and other drugs have a low price elasticity, therefore the price of these products must be increased by a significant margin.” He also added, “Increasing the price of tobacco products by a significant margin won’t have any major impact on the revenue earnings of the NBR in the short run.”

In the open discussion session, representatives from the Bureau of Economic Research of the University of Dhaka, Dhaka Ahsania Mission, and Work for Better Bangladesh expressed their opinions. Apart from them, journalists and representatives from anti-tobacco organisations were present at the event.