Economists and policymakers have opined that the tax policy in the tobacco sector needs to be simple, transparent, predictable and sustainable. According to them, it is important to formulate a realistic tax structure to support the overall economic activities of the country, while ensuring continued revenue collection and administrative efficiency.
Speakers made these remarks at a roundtable discussion titled “Tobacco Tax: Short-term Revenue vs. Long-term Sustainability” organized at the Policy Research Institute (PRI) office in Banani, the capital, on Thursday (April 2).
A representative of the UK-based firm Ernst & Young presented the keynote address at the event.
PRI’s research director Bazlul Haque Khandaker delivered the opening speech and PRI’s chief economist Ashikur Rahman moderated the discussion.
The main article states that Ernst & Young's recent assessment of the cigarette market in Bangladesh has shown that although tax rates and prices have been significantly increased in the tobacco sector since FY20, revenue growth has not been at the expected rate.
In particular, large increases in cigarette prices and duties in June 2024 and January 2025 have led to a decline in sales, which has an impact on revenue.
The report also states that currently, the total tax rate on tobacco products in the country has reached about 83%, which is one of the highest in the world.
In this situation, the scope for increasing revenue by simply increasing tax rates has become limited.
Rather, sudden tax and price adjustments are creating instability in the market and increasing the risk of expanding the illegal trade.
The speakers said that due to frequent tax and price changes, consumers are turning to relatively low-priced products, which is distorting the market structure.
At the same time, the price gap between high and low-end products is creating an abnormal situation in the market.
They said that revenue forecasting is becoming weak due to the complexity of the current multi-tiered tax structure. Therefore, a step-by-step transition from a value-based tax system to a specific tax system has been recommended.
The speakers emphasized on increasing the capacity of relevant agencies to control illegal trade, strengthening market monitoring and using modern technology to supervise production at the factory level.
They warned that illegal trade is becoming relatively more profitable as the profits of legal producers are decreasing due to the current tax structure. A balanced, transparent and far-sighted tax policy is needed to address this situation.
According to the speakers, it is essential to ensure sustainable growth in revenue collection, create an investment-friendly environment and maintain stability in the tobacco sector by formulating a coherent and realistic tax structure.
