How govt can regulate steady revenue growth from tobacco sector

As the world grapples with the economic fallout of the Covid-19 pandemic and other global crises, Bangladesh has emerged as a beacon of economic and financial growth.

However, the country must tread carefully to sustain its progress and ensure steady revenue growth, especially from the tobacco sector.

Tobacco industry is a major source of revenue income for the government contributing to about 10-12% of national exchequer year on year. While the government seeks to increase revenue collection from this industry, any hasty changes in tax rate could have adverse social and economic consequences.

The largest segments in Bangladesh are the low and medium tier range. Raising prices or tax rates in these segments could disproportionately affect low and middle-income individuals, while higher-income groups would likely remain unaffected. This could lead to significant social and economic disparities, which would ultimately hamper the country's ongoing economic upturn.

If taxes and prices of medium and low segment cigarettes increase significantly in the upcoming FY24, it is likely to trigger a variety of reactions. The illegal cigarette trade in Bangladesh is a significant issue that causes the government to lose out on millions of taka annually, and the problem is only growing. Experts suggest that the increase in cigarette prices of products below high segment is linked to the illegal cigarette trade and revenue loss. When the price of medium and low-segment cigarettes rise, consumers of medium-segment cigarettes tend to shift towards illegally imported cigarette brands, while low-segment consumers are pushed to buy cheaper and often counterfeit cigarettes, such as bidis or fake brands. However, raising tobacco prices does not deter smokers from purchasing cigarettes, as demand for them is generally stable.

To regulate steady revenue growth from the tobacco sector, the government must strike a delicate balance between revenue collection and social equity. One approach could be to gradually raise prices of cigarettes below high segment while simultaneously investing in public health campaigns to discourage tobacco consumption. Additionally, the government could consider implementing policies that target higher-income groups, such as luxury taxes on high-end tobacco products.

It is clear that the tobacco industry has a significant impact on the economy in Bangladesh. The cigarette sector in Bangladesh was a significant contributor to the country's revenue in the 2021-2022 fiscal year, with the National Board of Revenue collecting nearly Tk30,000 crore in value-added tax (VAT) from this sector alone. It is important for the government to consider all potential consequences when implementing policies related to this sector.

Increasing taxes on tobacco products may seem to be an effective and easy way to reduce consumption and increase revenue, but as expert says, it must be done carefully to avoid unintended consequences.

In addition to tax policies, creating awareness against tobacco consumption can also be an important step in reducing smoking. Education and awareness campaigns can help to tailor mindset away from tobacco use, specifically from an early age and promote healthier lifestyle.

Overall, it is important for the government to take a comprehensive approach to address the issues related to tobacco, considering the economic, health, and social implications. It is crucial for Bangladesh to prioritize economic stability and public health in its policies and decision-making. This can help ensure sustainable progress and prosperity for the country in the long run.