Can Bangladesh become a tobacco-free country?
Bangladesh aspires to become a tobacco-free country by 2040, and the good news is, we are moving forward. Between 2009 and 2017, tobacco usage among those aged 15 years and above dropped by 19%, according to WHO’s Global Adult Tobacco Survey (GATS).
The bad news is, we are still a very long way off. Bangladesh remains one of the highest tobacco consuming countries in the world, where more than a third (35%) of the adults smoke and/or use smokeless tobacco (SLT) products such as zarda, gul, and sada pata.
The situation of smokeless tobacco consumption is alarming; the country ranks second among the 34 high SLT burdened countries.
Smoking is the salient form of tobacco use, and it is predominantly a man’s arena; 36% of adult men smoke in this country.
But smokeless tobacco is a silent killer, and a quarter of the adult women use them; the rate is 16% among adult men.
The high demand for tobacco products in Bangladesh has enormous health and economic costs. In 2018, about 126,000 deaths, 13.5% of all deaths in that year, occurred due to tobacco-attributable diseases.
The overall economic cost of tobacco use stood at Tk306 billion or $3.6 billion in 2018, a staggering 1.4% of the GDP.
So, it is urgent to better understand the nature of demand for tobacco in the country so that we can identify some effective measures for reducing its use.
To this end, BRAC Institute of Governance and Development (BIGD) conducted a study titled “Economics of Tobacco and Tobacco Taxation in Bangladesh” in close collaboration with the University of Illinois at Chicago (UIC). Some of the relevant findings of this study are discussed in this article.
As mentioned in the beginning, we are making progress; tobacco consumption among adults has reduced to 35% in 2017 from 44% in 2009.
This success may be attributed to both price and non-price measures undertaken by the government as well as by civil society, NGOs, media, and the partners of the Bloomberg Initiative (BI), which is a global initiative to reduce tobacco use.
But this consistent decline in tobacco consumption becomes less promising when the growth in population is considered. In Bangladesh, population grew by more than 1% per year from 2009 to 2017.
This implies that aggregate demand for tobacco consumption has actually marginally increased. That is why we saw a growth in the tobacco market during this period.
The BIGD study finds a number of reasons why overall tobacco consumption has not gone down. The nature of tobacco tax in Bangladesh makes the price measure ineffective.
In Bangladesh, tobacco taxation follows ad valorem method, in which the amount of tax is proportional to the price per unit of tobacco.
As the prices of tobacco products in Bangladesh are generally low, the impact of tobacco tax on the retail prices has not been very high.
Consequently, tobacco consumption has actually become more affordable despite increase in the retail price as income growth during the period outpaced the growth in tobacco price.
The large price differential across different types of tobacco products is yet another reason why overall tobacco consumption did not decrease. The price gaps between brands give consumers an option to switch to cheaper brands in response to ad valorem taxes.
Over the last decade, the price of high and medium-tier cigarettes went up and, consequently, their market shares drastically went down. But as the price of low-tier cigarettes remained low, despite some increase, the lost market share of high and medium-tier cigarettes was completely replaced by lower-tier ones.
Instead of ad valorem tax, tobacco products should be subject to specific tax (fixed amount of tax added to the market price of a good or service) in such a way that increase in price is higher than the increase in consumers’ real income.
This can reduce tobacco consumption effectively by making tobacco products less affordable.
Moreover, existing price differentials in Bangladesh’s tobacco market induce downward switching behaviour in response to tax and price increase.
In Bangladesh, the differential tax treatment has led to substitution from medium-tier to low-tier cigarettes. The market share of the low-tier cigarettes increased from about 25% in FY 2006-07 to about 71% in FY 2017-18.
In contrast, the market share of the medium-tier declined from about 52% to about 16%.
The substitution effect also produces large gaps in the government’s revenue collection.
Increase in the market share of low-tier, low-priced cigarettes combined with a decrease in medium and high-tier cigarette means smaller government revenue, as tax is proportional to price.
So, as a policy option, we suggest merging the four tiers of cigarette into two -- putting low and medium-tier cigarettes in one price category and putting high and premium in a much higher price category. This will limit the option of switching to a lower-price brand.
Existing tobacco tax and pricing policy discourages quitting behaviour, causes revenue loss, and offsets the expected health gains that could arise from reduced tobacco consumption.
If the policy options mentioned above are implemented, reaching the goal of a tobacco-free Bangladesh may be more feasible.
Muhammad Shahadat Hossain Siddique is Professor, Department of Economics, University of Dhaka.