Govt incurs Tk5,660cr in revenue as cigarettes sell at higher the fixed prices: Study

The government has been incurring approximately Tk5,560 crore in revenue per year as cigarettes sell at much higher prices than the revenue board-set prices, finds a latest study by the non-governmental organisation Unnayan Shamannay.

The organisation reached the conclusion after a small-scale market assessment in Dhaka, Rajshahi and Sirajganj on the impact of discrepancies between government-set cigarette prices and market prices.  The survey report was revealed in a virtual discussion on Thursday, according to a press release.

"For a 20-stick packet, consumers on average pay an additional Tk11.5 for low-tier cigarettes, around Tk15.5 for medium-tier cigarettes, and around Tk10.5 for high-tier cigarettes. But the gap is biggest for premium-tier cigarettes, Tk24 on average. As a result, the government is losing a huge amount of potential revenue," explained Unnayan Shamannay Lead Economist Robert Shuvra Guda.
The lost revenue could be worth Tk5,660 crore, he added.

The survey report suggests some reforms in taxation policy for discouraging smoking and enabling the government to collect its due revenue. Key recommendations are to set the minimum-declared cigarette prices above the current market prices in the FY24 budget, to bring the retail price of the low-tier and medium-tier brands at the same level, and to implement a two-tier pricing system, instead of the current four-tier system.

"Alongside the changes in the taxation policy, focus should also be on the production and distribution of tobacco products to reduce its consumption," Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said at the event, also attended by Bangladesh Institute of Development Studies Senior Research Fellow SM Zulfiqar Ali and Ekattor TV Chief Business Reporter Sushanta K Sinha and Campaign for Tobacco-Free Kids Lead Policy Advisor Mostafizur Rahman.

"If the retail prices of low-tier cigarettes are increased, it will create pressure on the low-income households to reduce consumption of cigarettes," added Mostafizur Rahman.

Unnayan Shamannay Head of Programmes Sushanta Sinha suggested that the taxation law must be made stricter so that the government receives actual taxes, even if cigarettes are sold at higher prices than the fixed prices.

SM Zulfiqar Ali believes that sales and consumptions of tobacco products cannot be eliminated using only a single policy instrument like tax. "Cigarettes and other drugs have a low price elasticity, therefore, price of these products must be increased significantly."

He further noted that increasing the prices of tobacco-products by a significant margin will not have any major outcome on revenue immediately.

In the open discussion session, representatives from the Bureau of Economic Research of University of Dhaka, the Dhaka Ahsania Mission, and the Work for Better Bangladesh shared their opinions.

Speakers also said cigarette companies pay taxes to the government according to declared prices, although they also benefit from the higher market prices. They called for taking the issues into consideration for the upcoming budget.