Cigarette prices in Bangladesh are among the lowest in the world because of tax structure despite having some of the highest tax rates, finds a World Bank study.
The WB study has recommended introduction of a specific excise tax replacing the current tariff-based (ad valorem) system and a gradual transition to a uniform tax structure to control tobacco consumption in Bangladesh.
The policy research working paper titled ‘the distributional impacts of cigarette taxation in Bangladesh’ was released on September 12.
‘Although tobacco taxation has been recognised as one of the most effective strategies to reduce smoking, the tobacco tax structure has helped make cigarette prices in Bangladesh among the lowest in the region despite some of the highest tax rates,’ said the study report.
In case of cigarette, the tax rate in Bangladesh is 77 per cent, highest among the seven Asian countries, which also included India, Sri Lanka, Nepal, Thailand, Pakistan and Indonesia, but the price of cigarette is second lowest after Pakistan, it said.
Bangladesh is one of the largest consumers of tobacco in the world as approximately 4 in 10 adults (46 million adults) use some form of tobacco, it said.
Tobacco consumption is also widespread across households in the country as approximately 65 per cent of households consumed some type of tobacco products in 2016, it said referring to the Bangladesh’s Household Income and Expenditure Survey 2016-2017.
‘The high rates of tobacco consumption in Bangladesh impose an increasing health and economic burden on the country,’ the report said.
The overall economic cost of tobacco use has been estimated at $1.85 billion or over 3 per cent of gross domestic product (GDP).
The paper said that there was a variety of taxes, including supplementary duties, on cigarettes based on several brand slabs and value-added tax on tobacco products in Bangladesh.
The rate of tax is based on the administered retail price, which varies across the price slabs.
‘The gaps between brands in the different tier categories create incentives for smokers to substitute less expensive brands in response to price increases and for manufacturers to position brands between price slabs to avoid paying higher taxes,’ WB paper said.
This tax base actually reduces the effective rate of the supplementary duty and the VAT.
‘The current taxation system has neither discouraged consumption nor maximised revenue in Bangladesh,’ it observed.
In the last decade, cigarette consumption, particularly the consumption of the cheaper brands, has expanded significantly.
Since 2011, the volume of the low segment cigarette consumption rose by an average of 26 per cent, causing the market share to increase.
Currently, the market share of the low segment accounts for nearly 77 per cent of total volume, from 51 per cent in FY 2011.
It said that by reducing tobacco consumption, tobacco taxation could also generate longer term monetary gains because of the improved health of the population.
According to various estimates, the annual direct health care cost attributable to tobacco related illnesses was approximately $ 990 million in 2016.
The study, however, showed that an increase in the price of cigarettes had small consumption impacts and did not significantly change the poverty rate or consumption inequality.
The gains in health associated with reduced cigarette consumption in response to a price increase are substantially larger in magnitude.
The main gains are savings in medical costs and the greater number of productive years of life.
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