Policy Exchange report urges rethink of tobacco tax structure

Policy Exchange has unveiled a new report on tobacco taxation, calling for an evidence-based policy framework that more effectively balances revenue generation with public health imperatives.

As part of its outreach, the organisation recently presented key findings to senior officials across relevant divisions of the National Board of Revenue (NBR). Policy Exchange stated that this engagement marks the beginning of a collaborative process to refine its analysis through closer technical coordination with the revenue authority.

The organisation added that it is engaging with additional government and private-sector stakeholders to broaden dissemination of the report's findings.

The report provides a simulation-based analysis of Bangladesh's current tobacco tax regime and examines how alternative excise structures, aligned with international best practices, could impact government revenue, cigarette consumption, and market dynamics over the next decade.

Drawing on household survey data, historical tax records, and established modelling frameworks, the study compares the performance of the existing ad valorem system with potential mixed and specific excise models.

According to the report, the current multi-tier ad valorem system may be approaching its structural revenue ceiling, while alternative excise designs could deliver stronger long-term fiscal performance by enabling more flexibility in tax rate setting.

Preliminary findings indicate that structural reforms to the existing system could enhance the stability and predictability of tobacco tax revenue, while supporting public health objectives. Policy Exchange estimates that a transition from the current ad valorem system to a specific tax regime on tobacco products could generate over Tk22,000 crore in additional revenue over the next decade, beyond baseline growth.

Tobacco remains a significant source of revenue in Bangladesh. Policy Exchange noted that the government collected approximately Tk40,000 crore from the sector in the last fiscal year, representing nearly 9% of the NBR's total revenue collection.

The printed publication was formally presented to NBR officials to support ongoing policy dialogue and evidence-based decision-making on tobacco taxation. Policy Exchange said it intends to collaborate closely with the NBR to incorporate updated administrative data and technical inputs, ensuring the simulation model is refined and aligned with the latest fiscal parameters.

Policy Exchange Chairman Dr Masrur Reaz said, "Tobacco taxation remains a critical source of government revenue in Bangladesh. Strengthening the evidence base on how various tax structures affect revenue stability, consumption patterns and market dynamics is essential for designing policies that are fiscally effective and socially responsible."

He added, "Our research suggests that adopting a specific tax system could not only increase revenue but also reduce tobacco consumption by a further 8% over the same period, supporting both public health and revenue mobilisation objectives."

Policy Exchange said the initiative aims to strengthen the analytical basis for future tobacco tax policy by integrating independent research with official administrative data and technical expertise.