Sohel Parvez has little interest in the government’s annual budget as those numbers appear dry as dust to him. But every June, as the Bangladesh government declares the budget for the next fiscal year, Parvez, a chain-smoker, doesn’t forget to check one thing: whether the prices of cigarettes have increased or not.
Born and raised in the capital Dhaka, 36-year-old Parvez has witnessed how living costs in the city have risen sharply over the years. With earnings from a mid-level executive job at a local conglomerate, he has increasingly been finding it difficult to maintain a family of five — but tobacco expenses are something he just can’t cut down on.
“I’ve tried several times to quit smoking, mainly because of health reasons and partly because of the surging prices. But I just couldn’t,” Parvez told TRT World.
Much to his surprise, he has figured out one thing of late: cigarettes have become more affordable despite price increases if he compares the portion of his income he used to spend back then and now.
When Parvez first started earning twelve years ago, he used to spend nearly 20 percent of his monthly income on one-and-half packs of cigarettes per day. The cigarette brand he consumes used to cost Tk 120 ($1.19) per pack of 20 cigarettes at the time. In 2022, Parvez now needs to spend around 8 percent of his monthly income on the same pack even though its price has increased to Tk 220 ($2.18).
This happened because the government hasn’t imposed taxes on tobacco in accordance with the growth of the country’s economy, and people’s income and tobacco products are essentially made more affordable throughout the years, experts said.
According to Global Adult Tobacco Survey (GATS), Bangladesh is one of the largest tobacco-consuming countries in the world, with over 37.8 million (35.3 percent of the country’s adult population) consuming cigarettes and other tobacco products.
Back in 2015, Dr Nigar Nargis from the American Cancer Society did a thorough study on the affordability of tobacco products and she found out that the inflation-adjusted cigarette prices for all brands increased in Bangladesh at an annual rate of 6.9 percent between 2009 and 2014–2015 while during the same period, the per capita annual household income increased at an annual rate of 9 percent.
It indicates that the affordability here has increased at a greater rate than the price increase, thus lowering tobacco’s real price. In an email to TRT World, Dr Nargis said, she discontinued the survey after 2015, but data from alternative sources indicate that cigarette affordability in Bangladesh continues to increase between 2015 and 2020.
Faulty taxation structure?
Bangladeshi research and advocacy organisation Progga, which monitors the tobacco industry, has come up with another observation after it carried out a comparative analysis of the average price increase (in a one-year period) of essential commodities in Dhaka, Chattogram, Rajshahi, and Khulna in June this year, along with the prices of tobacco.
It found the average price of soybean oil increased by 45.18 percent in June 2022 compared with June 2021. There has also been a significant increase in the price of flour (44.63 percent), eggs (34.03 percent), lentils (25.43 percent), powdered milk (18.19 percent), broiler chicken (16.63 percent) and rice (12.5 percent) during the same period.
At the same time, the prices of different categories of cigarettes have increased by just 4.93 percent on average. The price of low-tier cigarettes — which are consumed by some 75 percent of the country’s smokers — has only increased by 2.56 percent, Progga found.
Executive director of Progga, ABM Zubair, told TRT World the main reason behind increasing tobacco affordability lies in Bangladesh’s faulty taxation structure. He pointed out the current cigarette excise tax is imposed with tiered ad valorem rates — a tax system that creates the incentive of switching down to cheaper cigarettes in response to tax and price increases.
Cigarettes are categorised in Bangladesh in four tiers and even though a uniform 15 percent Value Added Tax (VAT) is imposed on all categories, the supplementary duty (SD) varies from 57 percent in the lower price segment to 65 percent in the higher price segment.
“It basically means tax burden on the cheaper products, which is consumed by more people, is much lower than the expensive brands,” Zubair said.
Taifur Rahman, a tobacco economist and a former Bangladesh representative of the US-based Campaign for Tobacco Free Kids (CTFK) explained the problem further. Talking with TRT World, he said the ad valorem rate means the SD on tobacco is currently imposed as a percentage of the retail price per pack of cigarettes.
Suppose the retail price of a 10 stick-pack of lower-tier cigarettes is Tk 39 (39 cents) and a 57 percent SD is imposed on this tier, which means Tk 22.23 (22 cents) is collected as excise duty. On the other hand, the retail price of 10 stick-pack in the premium tier is Tk 128 ($1.27) and a 65 percent SD is imposed on this tier.
“So the tier which has the lion share of the market has lower SD and when the government increases tax in each year’s budget, this tier is affected less and prompted smokers from switching to lower tier from upper ones,” Rahman said.
According to Progga research, lower-tier cigarettes used to have just 25 percent of market share in 2006, but now it has captured over 75 percent of the market as the multitier excise tax structure widened the price differential between brands and incentivised downward substitution by smokers from higher-price to lower-price cigarettes.
Rahman said the anti-tobacco campaigners of the country have long been advocating for implementing two things: first imposing a specific 65 percent SD for all tiers of cigarettes and then gradually phasing out the tier system to bring all cigarettes under one-tier.
Their research found that these steps would encourage nearly 1.1 million Bangladeshi adults to refrain from smoking and deter more than 800,000 youth from taking up smoking. It will at the same time fetch the government exchequer an additional Tk 9,200 crore ($912 million).
The golden goose
The problem is policymakers of subsequent governments have termed tobacco producers as the golden goose of tax and said tightening the grip on them could hurt their revenues. In the last fiscal year, the government earned nearly Tk 28,000 crore ($2.77 billion) from tobacco taxes.
Dr Nasiruddin Ahmed, who was a former chairman of Bangladesh’s National Board of Revenue (NBR), told TRT World that tobacco products provide a reliable source of government income. “As a result, revenue authorities typically rely on this source to satisfy the government’s revenue collection target in order to cover budgetary expenses,” he said.
“[The] tobacco lobby is also very strong and there are political pressures on the revenue authority to impose taxes as per the suggestion of the country’s tobacco producers,” Ahmed said. “I headed the NBR and I had experienced it firsthand.”
Ahmed also admitted that the current ad valorem tax doesn’t actually help to reduce tobacco consumption in Bangladesh. Giving an example, he noted the Philippines in 2012 imposed a specific SD on tobacco products instead of ad valorem and abolished the multitier structure of cigarette prices over the next few years.
“Because of these steps, cigarette sales in the Philippines were reduced by 28.1 percent between 2012-2015 while at the same time the government revenue from the tobacco sector increased three times,” said Ahmed, adding that a total of 65 countries have a specific SD on tobacco products and almost all of them have witnessed reduced tobacco consumption.
Shehzad Munim, managing director of British-American Tobacco Bangladesh (BATB) — the country’s largest cigarette producer which constitutes 66 percent of the market — begs to differ. He told TRT World that the tobacco sector is already among the highest taxed, and if a consumer spends Tk 100 (99 cents) on tobacco, Tk 84 (83 cents) goes to the government.
“About 12 percent of Bangladesh’s internal revenue comes from cigarettes. It is still profitable because of the turnover, since the turnover is huge,” he said.
Eminent economist and convener of the National Anti-tobacco Platform of Bangladesh Dr Qazi Khaliquzzaman Ahmad said there are other sides to seemingly looking at tobacco as just a big revenue earner.
“About 126,000 million people in Bangladesh died in 2018 from diseases linked to tobacco use, accounting for 13.5 percent of all fatalities. The economic cost of tobacco use was also estimated at Tk 30,570 crore ($3.6 billion) in that year. When you consider these, the earnings from tobacco don’t seem much,” he said.
Besides, Ahmed said, Bangladeshi Prime Minister Sheikh Hasina officially said in 2016 that the country wanted to become tobacco free by 2040.
“Imposing an effective taxation structure might be a good step towards achieving that,” he added.